Italy vs Recordati Industria Chimica e Farmaceutica S.p.A, September 2017, Supreme Court, Case No 20805

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Recordati Industria Chimica e Farmaceutica S.p.A had been issued an assessment by the tax authorities for FY 2003 on various issues related to transfer pricing.

Recordati Industria Chimica e Farmaceutica S.p.A. disagreed with the assessment and brought the case to court.

The Regional Tax Commission of Lombardy (Ctr) issued a decision where it partially annulled the assessment. This decision was challenged both by the tax authorities and Recordati Industria Chimica e Farmaceutica S.p.A.

Judgement of the Supreme Court

Before the Supreme Court there were 29 issues to be resolved.

The Supreme Court predominantly ruled in favour of the tax authorities.

The court confirms that transfer pricing adjustments are applicable even in the absence of proof by the administration of a concrete tax advantage by the taxpayer. The shift of taxable income following transactions between companies belonging to the same group and subject to different national regulations, does not require the administration to prove the elusive function, but only the existence of “transactions” between companies linked at an apparently lower than normal price.

The court also states that it cannot be excluded that overall business strategy can induce companies to carry out uneconomic operations in view of and in function of other benefits

“(…) the essential aspect of transfer pricing does not concern the justification of the lower price from an economic point of view, but whether the discounts can be considered justified from a fiscal point of view, that is, whether they respond to the principle of free competition, in accordance with the teachings of the Supreme Court.”

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