Italy vs Enoplastic SpA, June 2021, Supreme Administrative Court, Case No 15906/2021

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Enoplastic SpA is engaged in production of closures for vine, spirits, oil and vinegars.

Following an audit an assessment was issued by the tax authorities regarding transfer pricing.

An appeal was filed by Enoplastic and the Regional Court later set aside the assessment stating that the tax authorities had not proved the existence of a tax advantage nor that the pricing determined by Enoplastic had not been at arm’s length.

An appeal was then filed by the tax authorities claiming that the burden of proof was on Enoplastic due to the principle of proximity of evidence and that transfer pricing adjustments was not premised on proof of an intention to obtain tax savings.

Judgement of the Supreme Court

The Supreme Court upheld the decision to set aside the tax assessment. However, the basis on which the decision of Regional Court had been issued was incorrect. According to the Supreme Court transfer pricing adjustments should not be confused with tax fraud or avoidance, even if transfer pricing may be used for such purposes. Thus, transfer pricing adjustments is not premised on the tax authorities proving that a tax advantage has been archived by the incorrect pricing. The tax authorities must prove the existence of economic transactions between controlled parties at a price that appears to deviate from the normal price. Only where such evidence has been provided by the tax authorities will the burden of proof shift to the taxpayer who will then have to prove that the transaction has been priced in accordance with the arm’s length principle.

Judgement of the Court

The Supreme Administrative Court

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Supreme Court of Civil Cassation sec. VI, 08-06-2021 n.15906 ORG

Related Guidelines

TPG2022 Chapter IV paragraph 4.13 In jurisdictions where the burden of proof is on the taxpayer, tax administrations are generally not at liberty to raise assessments against taxpayers which are not soundly based in law. A tax administration in an OECD member country that applies the arm’s length principle, for example, could not raise an...
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TPG2022 Chapter IV paragraph 4.68 Corresponding adjustments are not the only adjustments that may be triggered by a primary transfer pricing adjustment. Primary transfer pricing adjustments and their corresponding adjustments change the allocation of taxable profits of an MNE group for tax purposes but they do not alter the fact that the excess profits represented...
TPG2022 Chapter IV paragraph 4.3 This chapter discusses several administrative approaches to resolving disputes caused by transfer pricing adjustments and for avoiding double taxation. Section B discusses transfer pricing compliance practices by tax administrations, in particular examination practices, the burden of proof, and penalties. Section C discusses corresponding adjustments (Paragraph 2 of Article 9 of...

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