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Landmark Examination of TNMM Application and Transfer Pricing Methodology in Italy
Observations on Terex Italia’s Supreme Court Case
Terex Italia faced tax adjustments from Italian authorities after audits for 2009 and 2010 challenged the use of the Transactional Net Margin Method (TNMM) in pricing transactions with its UK distributor, GENIE UK. The authorities argued that this resulted in sales below cost, applying the Comparable Uncontrolled Price (CUP) method to increase taxable income. Terex’s appeals were rejected by lower courts, prompting an escalation to the Supreme Court. The court ultimately ruled in favor of Terex, emphasizing the importance of consistency in transfer pricing methodologies and criticizing the authorities’ dismissal of the TNMM without adequate justification.
1. Background and Facts of the Case
Terex Italia s.r.l. is a manufacturer of heavy machinery that sells these products to a related distributor in the UK. The British sales company was compensated using the TNMM.
Following an audit for fiscal years 2009 and 2010, the tax authorities served Terex a notice of assessment in which adjustments were made to the taxable income in respect of a transfer pricing transaction, and in particular contesting the issuance of a credit note in favor of the English company GENIE UK with the description...