Contracts for the provision of intra-group services are often under the checks of the tax authorities. The Tax Office aims to verify the correct allocation of intra-group income flows.

In this respect, the Financial Administration may disputes in two respects:

  1. verifying whether the policies applied in the contractual arrangements involve the application of market values. The Tax Office may adjust the fees that are not in line with such values, in consideration of the Italian transfer pricing rules of the Article 110, paragraph 7 of Presidential Decree No. 917/86;
  2. checking whether the costs that a company belonging to a group incurs vis-à-vis its counterpart meet the requirements of:
  3. Certainty;
  4. Inherence;
  5. Congruity.

Transfer pricing and burden of proof

For what concern Transfer Pricing the general principles of tax law are applied, so it is up to the Financial Administration to prove that the requirements for the application of Article 110, nr. 7 of Presidential Decree No. 917/86 are met, as well as the discrepancy between the fee agreed between the related parties and the normal value of the goods or services transferred. What is necessary for a correct allocation of the burden of proof is that the Financial Administration demonstrate the abnormality of the prices of the transactions subject to verification. Only subsequently the Financial Administration may ask to the taxpayer to provide evidence that such discrepancy from the prices generally charged on the market does not exist or it is in any case justified by the particular terms or characteristics of the transaction carried out.

The documentation in the transfer pricing

The key provision on this matter is the Article 26 of Decree-Law No. 78/2010, which provides that, with respect to the transfer pricing, the penalties provided by the Article 1, paragraph 2, of Legislative Decree No. 471/1997, cannot be applied if the taxpayer provides to the tax authorities a appropriate documentation to verify the compliance with the normal value of the intra-group prices charged.

The Italian legislation has adapted to the international practice and in particular to the Code of Conduct set forth in Resolution 2006/C176/01 of the European Commission and to the OCSE guidelines. Althought the preparation of the documentation ensures the taxpayer the advantage of not being subject to penalties, this is not mandatory for companies that carry out intra-group transactions. Its omission therefore does not affect the taxpayer’s ability to demonstrate by other means that the prices charged to its associates are compliant with the free competition principle.

The documentary support to be kept allows to get the deductibility from the income of the company which take the costs. The documentation considered useful to justify the effectiveness of intra-group services is the follow:


  1. presence of an intercompany contract: there must be a valid and binding contract between the companies of the group concluded in time before the start of the performance of the services. The contract must contain a detailed description of the services and the manner in which the agreed fee is to be determined. In addition, the time and payment method should also be indicated;
  2. group organigram chart: a group organigram chart should be provided which shows the functions carried out by the various companies of the group. The aim is to make visible that the main functions are not finalyzed to satisfy the control functions of the parent company but rather to highlight that there is no duplication of costs;
  3. reporting at group level: there must be periodic group reporting, i.e. documents showing periodically the services provided from which it is possible to see which are the various cost centres used in the various companies of the group. (For example, it is possible to allocate the cost as a percentage for each entity of the group in relation to the benefits obtained by each entity. Or, for example, the allocation may be made by allocating by cost centre the hours worked for each entity);
  4. absence of structure in the subsidiaries: documentation proving the absence of indipendents administrative structure in the subsidiaries. When the services are centralised on the holding company, it should be pointed out that such services could not have been carried out directly by the subsidiaries due to the lack of independents administrative structure of these ones;
  5. distribution of functions within the group: documentation useful to prove that within the group there is no duplication of structural costs, relevant item in order to obtain the deductibility of the cost in the contracts for intra-group services;
  6. commercial and advertising documentation: the benefit of marketing services and licensing of trademarks, know-how and image rights must be documented. The value of intangibles, if managed with contracts for intragroup services, must also be documented;
  7. presence of work orders: there must be documents showing that the employees of the company charging the costs, actually provide services or perform functions for the subsidiaries. Where costs are charged by a sub-holding company, there must be documentation to show that the costs are charged progressively from the parent company;
  8. certification by a statutory auditor: it is appropriate that a statutory auditor ratifies the work of the group. This can be done through the presence of the above-mentioned documentation which must be ratified by a statutory auditor.

The aim is to verify the work of the group, confirming that the services have been rendered, costs have been incurred and cost allocations are correct. For each entity in the group, there must be a cost allocation based on the benefits received. Only actual services may be charged by the holding company to its subsidiaries. From this then, the contractual arrangements must be properly structured in order to have the “actual” services according to the OCSE guidelines.


This achieves a double aim from a tax point of view:

  • it is possible to obtain the correct deductibility of the cost incurred by the subsidiaries that bear it;
  • it is possible to avoid, in this way, possible disputes regarding the non-compliance with the transfer price discipline in intra-group transactions.


This is a discipine the Financial Administration is focusing on for the checks carry out in the companies groups, specially in those having multinational relevance.