In Italy, Transfer Pricing rules intend to ensure that related-party transactions are at the Arm’s Length Principle, i.e., under similar conditions agreed by independent entities in the open market. This principle is essential to avoid mispricing that could erode the tax base and shift profits to tax havens.
Non-Interest-Bearing Intragroup Loans: Dealing
A relevant issue in applying Transfer Pricing rules is the dealing with non-interest-bearing intra-group loans. These loans, not accruing interest, may not reflect the market conditions expected among independent parties. Therefore, the Italian tax authorities analyze whether such loans comply with the Arm’s Length Principle and, if not, may adjust to reflect an interest rate at the market.
It should be noted that the Italian Supreme Court, in Ruling No. 3223/2025, addressed the application of Transfer Pricing rules to non-interest-bearing intra-group loans, confirming their obligation to such regulation. According to the Arm’s Length Principle, the Italian Tax Agency may impute notional interest income when a parent company grants free financing to a foreign subsidiary.
Conversely, the court establishes that the tax administration must first demonstrate that the transaction was not carried out at a market rate. Subsequently, the taxpayer must support the absence of interest, either proving that the rate applied is appropriate or the loan was commercial within the group. This decision is consistent with previous rulings, such as Ruling No. 7361/2024, highlighting the importance of assessing the debtor’s solvency and market conditions.
Tax Implications and the Importance of Documentation
The correct Transfer Pricing policy documentation is crucial for companies performing intra-group transactions. In Italy, the regulations require that the documentation be prepared annually and drafted in Italian, except for the “Master File,” which may be in English. In addition, the legal representative must sign documentation electronically before reporting the corporate income tax return. It facilitates transparency and allows tax authorities to assess whether intra-group transaction terms, including non-interest-bearing loans, are at the Arm’s Length Principle.
Conclusion
Companies operating in Italy that engage in intra-group transactions, especially those involving non-interest-bearing loans, should pay particular attention to compliance with Transfer Pricing rules. Proper documentation and ensuring that the transaction terms reflect those of the open market are essential to avoid tax adjustments and penalties. Therefore, companies should mandatorily review their internal policies and consult with experts to ensure regulatory compliance.
Source: ITR Resolution No. 360494 Transfer Pricing Regulations Italy