Intervet Productions SRL, a company resident in Italy, manufactures veterinary medicines and supplements.
The Italian tax authorities issued a notice of assessment, relating to the 2004 tax year. In that notice, the tax authorities ascertained the inconsistency of the transfer prices concerning the sale of certain goods to a related party in Germany.
For the determination of the transfer prices, the taxpayer had used two methods: the resale price method, for products subject to mere marketing, and the cost-plus method, for products subject to further processing by Intervet.
The tax authorities had used the CUP method for the purpose of the adjustment.
Intervet appealed against the assessment, contesting the comparability of the products compared by the tax authorities but lost in the proceedings on the merits
An appeal was then filed with the Supreme Administrative Court.
Judgement of the Supreme Administrative Court
The Court set aside the assessment.
The Court stated that the tax authorities has to prove that the transactions, put in place by the taxpayer, would have generated greater taxable income if they had been conducted between third and independent parties, pursuant to Article 9(3) of the TUIR.
In identifying the methods for determining transfer prices, the tax authorities must follow the indications contained in the OECD Transfer Pricing Guidelines and choose the method that is most appropriate in relation to the concrete case.
The Court notes that in the judgment under appeal the functional analysis relating to the competing company was completely disregarded, since no assessment was made of the comparability and economic function performed by the latter.
It is also noted that no reasons were given as to why the method applied by the taxpayer should be considered inadequate compared to the price comparison method applied by the Agency.
Italy vs Intervet Productions SRL 22539-2021