In a recent decision with significant implications for international taxation, the Italian Supreme Court (Judgment No. 18058, July 3, 2025) has clarified the scope of the “associated enterprises” scope applicable to Transfer Pricing regulations. This ruling clarifies the scope of control required to apply Transfer Pricing rules, particularly regarding the retroactivity of the Ministerial Decree of May 14, 2018.
Legal Control vs. Economic Influence
Historically, the debate in Italy has revolved around two interpretations:
- Applying Transfer Pricing rules only in cases of legal control; and
- Extending their application to situations of economic control, even if there is no formal corporate shareholding relationship.
Circular No. 32/1980, still in force as interpretative doctrine, already held a broad view of the concept of control. According to this approach, control is not limited to the legal criteria established in Article 2359 of the Civil Code but also includes any actual or potential economic influence inferable from specific circumstances, such as exclusive sales, financial dependence, or personal or contractual links.
Subsequent Regulatory Framework: Ministerial Decree of 2018
The 2018 Ministerial Decree defined “associated companies” for tax purposes more specifically, arguing that a company is related when it is directly or indirectly involved in the management, control, or capital of another company, or when a third company is in both. Quantitatively, they are equity stakes exceeding 50% or significantly influence through contractual relationships.
The 2025 Decision: No Retroactivity of the New Standard
The Supreme Court examined whether a control relationship existed between an Italian company and a foreign one in the 2015 fiscal year, based on the existence of two common directors. The tax authority argued that this situation implied significant influence, triggering Transfer Pricing rules.
Conversely, the Court concluded that:
- The definition in the 2018 Decree does not have retroactive effects.
- For 2015, the existence of a stable economic influence had to be assessed according to the previous approach.
- The mere presence of common directors does not automatically imply control or economic subordination, particularly since there were no specific facts demonstrating such subordination.
- The Italian company’s distribution activity was not exclusive or predominant regarding the foreign company’s products.
- The alleged contractual omissions were not precisely of dependence due to supporting evidence such as production capacity problems and high initial costs.
Implications for Tax Practice
This ruling reaffirms the need for a substantive, rather than merely formal, assessment of intercompany relationships to determine the application of Transfer Pricing rules. Moreover, it sets a limit on the retroactivity of subsequent, more restrictive regulations, requiring that control relationships established in previous years be assessed under the standards then in effect.
Additionally, it highlights the Italian Supreme Court’s repeated criterion on the importance of concrete facts demonstrating actual economic subordination or influence, beyond the corporate structure or simple administrative links.
Source: ITR