The tax authorities issued an assessment against Prysmian s.p.a. for 2012, raising two adjustments: one for over €13 million relating to income attributable to its Singapore subsidiary, Draka Cableteq Asia Pacific Holding, under Italy’s CFC rules, and another for over €1 million relating to transfer pricing.
However, on appeal the Provincial Tax Commission annulled the latter adjustment because the disputed transactions were purely domestic, taking place between Prysmian s.p.a. and its Italian subsidiary PCS. Therefore, they were not subject to italian transfer pricing rules. However, the Commission upheld the CFC adjustment.
On appeal, the Regional Tax Commission reversed this decision, fully confirming the original assessment. It held that services invoiced by Prysmian to PCS were merely passed on by PCS to foreign subsidiaries, rendering PCS a passive conduit. The Regional Tax Commission did not explicitly rule on the cross-appeal filed by Prysmian against the CFC finding.
In an appeal to the Supreme Court, Prysmian advanced three grounds of appeal. Firstly, Prysmian challenged the Regional Tax Commission’s assertion that transfer pricing rules applied to domestic transactions. Secondly, Prysmian argued that the Regional Tax Commission had failed to rule on its objection to double taxation arising from the transfer pricing adjustment. Thirdly, Prysmian alleged that the Regional Tax Commission had failed to rule on its cross-appeal regarding the CFC adjustment.
Judgment
The Supreme Court dismissed the first argument on the grounds that, while the Regional Tax Commission’s ruling was incorrect in light of Article 5(2) of Legislative Decree 147/2015 and Supreme Court case law excluding domestic transfer pricing, it was not crucial to the outcome. In fact, the Regional Tax Commission based its decision on the existence of foreign recharges, which legitimately brought the case under transfer pricing rules.
The Court found the second ground to be unfounded. According to Article 112 of the Code of Civil Procedure, failure to rule requires the clear identification of an unresolved claim. In this case, the CTR’s acceptance of the Office’s main appeal implied rejection of such objections, including double taxation.
The Court upheld the third ground, noting that the cross-appeal raised distinct issues which the Regional Tax Commission had never addressed. These could not be treated as absorbed or implicitly rejected. The Court therefore quashed the judgment and remitted the case to the Regional Tax Commission for a fresh examination of the CFC issues and determination of costs, with a different composition of the Commission.
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