The Tax Agency had issued some notices of assessment against “Lender SpA” that had provided non-interest bearing loans to two Serbian companies, of which it owned respectively 70 and 80 per cent of the share capital, because it had decided not to recognise such loans, hypothesising a violation of Article 110, paragraph 7 of the Italian Income Tax Code (Tuir), on the subject of transfer pricing.
An appeal was filed by Lender SpA with the Provincial Tax Commission where the assessment was set aside.
An appeal was then filed by the tax authorities with the Regional Tax Commission.
Decision of the Regional Tax Commission
The Court, upheld the first instance ruling and affirmed that the non-interest bearing loan cannot be considered an income component, but must be considered a type of financing between affiliated companies.
Excerpt
“The Office’s appeal is unfounded and the judgment under appeal must therefore be upheld.
With a decision that stands out for its clarity and legal rigour, the first judges unequivocally indicated that the transfer pricing rules are contained in the combined provisions of Article 110, paragraph seven, and Article 9, paragraph three, of the TUIR, which provide that the price at which commercial transactions take place between companies resident in different States that are linked by controlling relationships must be assessed at normal value. These must then be exchanges between companies resident in Italy and companies tax resident abroad linked by direct or indirect control relationships, exchanges – in the final analysis – carried out on the basis of so-called market value.
The non-interest-bearing loan, which is the subject of the relief, cannot therefore be considered a component of income, as the Office seeks to corroborate, it must instead be considered a type of financing between contiguous parties: relatives, friends, or companies belonging to the same group. Lawful transactions carried out not for avoidance purposes.”
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