This article provides an in-depth analysis of the ruling by the Corte di Cassazione (Italian Supreme Court) in the case of Italy vs De Grisogono Italia s.r.l., judgment 29089/2025 of November 2025. This case constitutes a recent jurisprudential milestone in transfer pricing, as it addresses critical issues regarding the application of the transactional net margin method (TNMM) in low-risk distribution structures (limited-risk distributors), the selection of comparables, the comparability analysis, and the interaction of transfer pricing adjustments with VAT.
The ruling not only clarifies essential technical criteria, but also reinforces the importance of economic and functional documentation as an element to prove the full competitiveness of intra-group transactions.
For its part, this precedent reaffirms standards that are now indispensable for professional practice, especially in the areas of comparable selection, economic substance, and technical defense in audits, aspects that tax advisors and compliance departments must master.
Factual context and structure of the transaction
- The controlled entity is De Grisogono Italia s.r.l., an Italian company engaged in the sale of luxury watches and jewelry through boutiques in Rome and Porto Cervo. Its products are purchased from the Swiss parent company De Grisogono SA, the group’s sole production center.
- It is important to note that the luxury sector in Italy operates under highly controlled distribution models, where brand identity, boutique experience, and centralized commercial policies significantly influence the functional characterization of distributors. This information technically reinforces the classification of the entity as a limited-risk distributor.
- For the 2014––2016 fiscal years, De Grisogono Italia documented its intra-group transactions using the transactional net margin method (TNMM), adopting a “net cost plus” as a profitability indicator, considering that the entity operated as a low-risk/limited-risk distributor.
- Following a tax audit, the Italian tax authority (Agenzia delle Entrate) questioned the reported profitability: it accepted the application of the TNMM, but rejected both the level of profitability used and the comparable companies selected. Using the AIDA database, it developed its own set of external comparables and evaluated margins based on EBIT, concluding that the subsidiary’s persistent losses indicated that the prices paid to the Swiss parent company did not comply with the arm’s-length principle. In addition, the authority challenged the amortization of goodwill and the VAT treatment of certain sales considered exports.
- According to specialized publications, the authority also argued that the Italian entity generated brand value associated with the boutique and luxury experience, an argument that sought to question its limited risk profile. Although this point was not successful in court, it is a relevant doctrinal aspect for identifying how tax administrations evaluate qualitative elements of the business.
- As a result, additional adjustments were made to both income tax/corporate tax and VAT.
These events triggered administrative and judicial litigation that escalated to the Supreme Court.
Development of the litigation: administrative and judicial proceedings
- Administrative instance — Provincial Tax Commission: upon reviewing the challenge filed by De Grisogono Italia, it annulled the transfer pricing adjustments, noting that the benchmarking performed by the authority was flawed; it also annulled the VAT adjustments, considering that the disputed sales corresponded to exports to customers outside the EU and not to duty-free sales to travelers.
- Appeal instance — Regional Tax Commission: it upheld the provincial instance’s decision. Based on case law on TNMM and comparability analysis, it held that the tax authority had not carried out a sufficiently detailed analysis of the comparability factors, and therefore its selection of comparables was inadequate.
- Challenge before the Supreme Court: The Agenzia delle Entrate filed an appeal, challenging the assessment of the facts and the methodology adopted by the lower courts. The authority insisted that the existence of recurring losses automatically invalidated the limited risk profile, an argument that the Court considered insufficient as it was not supported by a complete functional analysis.
Supreme Court decision and technical-legal grounds
The Supreme Court dismissed the appeal and upheld the decision in favor of the company. The key points of its reasoning are as follows:
- It reaffirmed that, in order to correctly apply the TNMM method in accordance with Article 110(7) of the TUIR (Italian tax code), it is essential to carefully select comparables and thoroughly analyze all relevant comparability factors—not only financial data, but also contractual terms, economic circumstances, market conditions, functions and risks assumed, commercial strategies, and organizational structure.
- It understood that the Regional Commission’s assessment of the tax authority’s benchmarking as inadmissible corresponded to a fact-finding assessment and that, in accordance with Italian procedural law, it was not subject to review on appeal (except in the case of an error of law). Therefore, the Court limited its analysis to the conformity of the legal reasoning, without reopening the entire comparative analysis.
- With regard to VAT, the Court declared the tax authority’s argument inadmissible: to accept it would require a new assessment of facts already decided by the lower courts, which exceeds the function of cassation. Consequently, the VAT adjustments were definitively annulled.
The ruling thus establishes a solid precedent on the standards of reasonableness, economic substance, and thoroughness required in transfer pricing analysis.
Technical-doctrinal analysis: implications and lessons for practice
Validity of the TNMM in low-risk structures
The ruling confirms that the TNMM is a fully valid method for entities that perform limited functions and assume few risks. This is consistent with previous Italian case law recognizing methodological flexibility in transfer pricing.
In sectors such as luxury goods, where strategic centralization and brand protection are common, this ruling reaffirms that belonging to an industry with a strong commercial position does not automatically make a distributor a generator of local intangibles.
Importance of comprehensive comparability analysis
The ruling emphasizes that the mere existence of comparable financial data is not sufficient. The “comparability factors” required by international guidelines—contractual conditions, functions, risks, business structure, market, commercial strategy, among others—must be analyzed exhaustively and documented. This imposes a high standard of documentation, functional and economic analysis, reinforcing the need for transfer pricing reports that contain not only accounting data, but also economic substance and business justification.
Legal certainty and limitations of tax control in cassation
By limiting cassation review to questions of law (and not of fact), the Court offers a degree of certainty and stability—which benefits taxpayers who have properly prepared their documentation. This is especially relevant in multinational groups, where a cassation decision can put an end to lengthy litigation and provide certainty about the validity of the transfer pricing strategy adopted.
Coordination between transfer pricing and other taxes (VAT, depreciation, etc.)
The case shows that transfer pricing adjustments may be accompanied by questions regarding VAT or amortization of intangibles—with additional tax implications. Therefore, the tax compliance strategy must integrate not only transfer pricing documentation, but also analysis of VAT treatment, asset amortization, and other tax aspects that may arise from the revaluation of intra-group transactions.
Conclusions
The case Italy vs De Grisogono Italia s.r.l. (Italian Supreme Court, Judgment 29089/2025) consolidates a particularly relevant precedent in transfer pricing, reaffirming fundamental technical principles applicable to limited risk distribution structures. In particular, the ruling validates the use of the transactional net margin method (TNMM) when it is duly supported by a coherent functional analysis and robust documentation that reflects the real economic substance of the transactions.
Likewise, the ruling reinforces the need for a comprehensive and exhaustive comparability analysis, incorporating not only financial metrics but also economic, contractual, and business factors that allow for an adequate assessment of the arm’s length principle. In this sense, it implicitly rules out the sufficiency of benchmarking exercises based exclusively on databases, without proper technical and functional support.
Additionally, the Court’s decision establishes an important criterion of legal certainty by delimiting the scope of review in cassation, preventing the revaluation of facts when they have been duly analyzed in lower courts. Finally, the case highlights the direct interaction between transfer pricing adjustments and other tax figures, such as VAT and the amortization of intangibles, confirming the need to approach international taxation from a comprehensive and non-fragmented perspective.
Does your economic group face transfer pricing challenges?
At TPC Group, as a company specializing in transfer pricing, we provide comprehensive advice to national and multinational business groups on the structuring, documentation, and defense of their transfer pricing policies, in accordance with the arm’s length principle and international standards. We accompany our clients in tax audits, inspections, and disputes, offering solid technical solutions that strengthen the legal certainty of their operations.
Source: TPCases