Italy vs J.T.G.P. spa, September 2019, Lombardi Regional Tribunal, Case No 928/20/2019

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The Italian company J.T.G.P spa, a subsidiary in a multinational pharma group ALPHA J, had recorded operating losses for fiscal years 1997 to 2013, where, at a consolidated level, the group had showed positive results.

According to the Italian tax authorities, the reason why the Italian company was still in operation was due to the fact that the group had an interest in keeping an international profile, and to that end the Italian company performed marketing activities benefiting the Group. An assessment was issued where the taxable income of the Italian company was added compensation for inter-company marketing services carried out by the Italian company on behalf of the group.

The company argued that the pharmaceutical market and the governmental policy on the prices of medicines in Italy was the reason for the losses. In support of this claim the company submitted broad documentary evidence during the audit.

Judgement of the regional Court

The Court held in favor of the taxpayer. According to the Court, the company had demonstrated that the reasons for the losses were not the result of improper transfer pricing policies, but rather local market conditions – drug prices, etc. Furthermore, the court found that no conclusive evidence had been provided by the tax authorities to support the existence of “hidden” marketing services performed by the Italian company to the benefit of the group.

Excerpt

The existence of losses has been demonstrated by the taxpayer where the type of products marketed and the specificity of the Italian pharmaceutical market, which is stationary as a result of the forced reduction in the prices of reimbursable drugs and the regulation of price increases for C-range products and the difficulty of competing with larger groups, have been highlighted.

In addition, the company does not operate in the field of generic products but deals exclusively with general practitioners and specialists and distributes its products through a network of pharmaceutical wholesalers who, in turn, serve pharmacies throughout the country and is subject to government policies regarding the pricing of pharmaceutical products.

In any event, it should be noted that, from a statutory point of view, the company had achieved positive results in 2013 and in subsequent years in terms of net income, as shown by the financial statements for the years ended 31 December 2013, 31 December 2014, 31 December 2015 and 31 December 2016 on file, nor did the Office prove that the services had resulted in an advantage for the group, having limited itself to presumptions.

 

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Italy vs Corp Commissione tributaria 1 marzo 2019, Case n. 928

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