In this case the Italien tax administration concluded that transactions between an Italien company an a German sister company had been priced lower than the “normal value” of similar transactions.
Judgement of the Supreme Court
The Supreme Court ruled partly in favor of the GE Transportation Systems S.p.A. and partly in favour of the tax authorities. The case was remanded to the lower court for further considerations.
In relation to intercompany transactions the court found that GE Transportation Systems S.p.A. had only limited risk and that the German company owned the intellectual property. In relation to transactions with independent companies, GE Transportation Systems S.p.A. assumed the risks of the transaction and had the rights to manufacture and sell the products. These differences justified different price and led to the transactions not being comparable.
The Court concluded that the limited risk – contract manufacturing – transactions with the German parent could not be compared with the full-fledged manufacturing activities.
In regards to the limited risk transactions, the court also stated that the Italien contract manufacturer is in a weaker bargaining position compared to a full-fledged manufacturer that owns the relevant intangibles.
“Since the case cannot be decided on the merits, it must be referred to the Regional Administrative Court of Tuscany in another composition, which will re-examine the accepted grounds and, therefore, in accordance with the above-mentioned principles, will decide on the merits and settle the costs of the present proceedings.”Italy Supreme-Court-23-December-2014-No.-27296