Tax Treaty Case Law around the Globe 2016

S. 169Chapter 13 Italy: Interest-Free Loans and Transfer Pricing

Guglielmo Maisto

13.1. Introduction

The decision of the Supreme Court no. 15005 was rendered on 17 July 2015 and provides an interesting interpretation with regard to the application of transfer pricing rules to a cross-border interest-free loan advanced by an Italian parent company to its wholly owned subsidiary in France.

13.2. Facts of the case

In 2002, an Italian tax-resident company, ItaCo, advanced an interest-free loan to its wholly owned subsidiary SubCo. SubCo was a company incorporated under the laws of France and resident therein for tax purposes.

Following a tax audit, the Italian tax authorities reassessed the taxable income ItaCo declared in fiscal years 2002 and 2003 through an upward adjustment for an amount corresponding to the interest income which, in the view of the tax authorities, had accrued but was not accounted for by ItaCo. The Italian tax authorities grounded their allegation on transfer pricing rules, maintaining that interest income should have been included in ItaCo’s taxable income irrespective of the circumstance that the loan granted by ItaCo to SubCo carried no interest.

The Italian company challe...