Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Italy

Italy has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review), except providing information to the Competent Authority without undue delay (ToR II.5.5) and exchanging information during the year of review on new entrants to the IP regime that obtained benefits with respect to trademarks (ToR I.4.1.3). These recommendations were also included in the prior year peer review report. In the prior peer review report, Italy received four recommendations and took steps to address each of them. Two of the recommendations referring to the swift identification of future rulings and the amendment of the ruling practice for all future rulings are therefore removed, and two recommendations (as above) are retained, as they were not yet fully addressed in the year of review. Italy is recommended to continue its efforts to reduce the timelines for providing the information on future rulings to the Competent Authority and to continue its efforts to identify and exchange information on new entrants to the grandfathered IP regime.

Italy can legally issue three types of rulings within the scope of the transparency framework.

In practice, Italy has issued 58 past rulings; for the period 1 April 2016 - 31 December 2016, Italy issued 39 future rulings;1 and for the year in review, Italy issued 123 future rulings within the scope of the transparency framework.

Peer input was received from four jurisdictions in respect of the exchanges of information on rulings received from Italy. In general the input was positive, noting that information was complete and in the correct format.

1. Including one ruling that was only identified and exchanged during the year of review.

Introduction

642.  This peer review covers Italy’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

643.  Italy can legally issue the three following types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; and (iii) as of May 2016, permanent establishment rulings. Rulings related to preferential regimes (including on Patent Box applications) and permanent establishment rulings are issued by offices within the Central Directorate for Tax Regulations. APAs and Patent Box ad hoc agreements to determine the embedded IP income in accordance with transfer pricing principles are issued by the APA office within the Central Directorate for Tax Assessment. Rulings other than APAs and ad hoc Patent Box agreements may be published in anonymised form as a general ruling or “resolution” on the Italian revenue agency website, if they are of general interest.2

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

644.  For Italy, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

645.  In the prior year peer review report, it was determined that the Italian tax administration’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The Italian tax administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

646.  For Italy, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

647.  Regarding issued APA rulings and rulings on preferential regimes it was determined in the prior year peer review report that the Italian tax administration’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. Italy’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

648.  With respect to PE rulings, Italy was recommended to amend its ruling practices to ensure a swift identification of all relevant rulings and the collection of information on all potential exchange jurisdictions. Since the prior review Italy has amended its existing databases. They now include information as to whether rulings concern cross border issues and the potential exchange jurisdictions.

649.  Italy also amended the procedure for collecting information relevant for the exchange of ad hoc patent box rulings. Notably, information is collected during the process of issuing ad hoc patent box rulings. Such procedure has been introduced in November 2017 and subsequent clarifications have been issued in January 2018. The newly introduced procedure requires the competent offices to collect from taxpayers all the information necessary to identify rulings in scope and potential exchange jurisdictions. The information is then used to draft the templates for the exchange. Furthermore, this information will be gathered in a dedicated database for IP rulings that is expected to be introduced in October 2018. Potential exchange jurisdictions for ad hoc patent box rulings that were issued before November 2017 were exchanged by using the “best efforts approach”, which was applied by searching the taxpayers’ files and internal databases.

650.  It is therefore determined that Italy’s amended system to identify future rulings and all potential exchange jurisdictions is sufficient to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

651.  In the prior year peer review report, it was determined that the Italian tax administration’s review and supervisions mechanisms were sufficient to meet the minimum standard. The Italian Tax Administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

652.  With the amended implementation Italy is now able to identify all categories of future rulings and potential exchange jurisdictions and has therefore met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

653.  Italy has the necessary domestic legal basis to exchange information spontaneously. Italy notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

654.  Italy is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 93.3

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

655.  In the prior year peer review report, it was determined that the Italian tax administration’s completion and exchange of templates were sufficient to meet the minimum standard except for transmitting information on future rulings to the International Co-operation Office (Italian Competent Authority) without undue delay.

656.  In order to address the recommendation, Italy amended its procedure to transmit information to the Competent Authority in the year of review and reduced the timelines from every six months to every three months. In the future, Italy aims to have the information on rulings in scope to be transmitted to the Competent Authority within two months after the issuance of the ruling. However, in the year of review it took the relevant offices an average of five months to forward the information to the Competent Authority and information on preferential regimes (including information on Patent Box rulings and ad hoc Patent Box agreements) was only transmitted to the Competent Authority in December 2017 and April 2018, and then only exchanged in January and July 2018. Italy is therefore recommended to continue its efforts to reduce the timelines for providing the information on future rulings to the Competent Authority (ToR II.5.5).

657.  Italy confirms that it uses the internal FHTP suggested guidance to complete the summary section of the template in Annex C of the 2015 Action 5 Report (OECD, 2015). Currently the summary section contains a summary of the transaction or activity covered by the ruling and a summary of the transfer pricing methodology (for APA rulings) or a reference of the particular preferential regime adopted (for Patent Box rulings).

658.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	0	0	N/A	No additional exchanges on past rulings had to be exchanged with new members of the Inclusive Framework that joined in 2017 and as such no additional exchanges on past rulings were required.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	199	0	N/A	This includes information exchanged with new members of the Inclusive Framework who joined during 2017 and exchanges on future rulings that were issued in late 2016.
Total	199	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

Conclusion on section B

659.  Italy has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges on future rulings in time. In the year of review, Italy continued to experience delays in providing information on future rulings to the Competent Authority, especially with regard to rulings on preferential regimes. Italy is therefore recommended to continue its efforts to reduce the timelines for providing the information on future rulings to the Competent Authority and to ensure that information is made available to the Competent Authority without undue delay (ToR II.5.5).

C. Statistics (ToR IV)

660.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	01	N/A
Cross-border unilateral advance pricing arrangements(APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	195	Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China (People’s Republic of), Colombia, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Ireland, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Mexico, Netherlands, Pakistan, Panama, Poland, Portugal, Romania, Singapore, Slovak Republic, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Kingdom, United States, Viet Nam
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	Included in de minimis	N/A
Related party conduit rulings	N/A	N/A
De minimis rule	4	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	0	N/A
Total	199

1. Italy notes that information on rulings related to preferential regimes was forwarded to the Competent Authority in December 2017 and April 2018 and that all such information (excluding those rulings lacking of legal basis) have therefore been exchanged by February and July 2018.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

661.  Italy offers an intellectual property regime (“IP regime”)4 that was amended with effect as of 1 January 2017 to the extent it was not nexus compliant (i.e. for benefits for trademarks) but for which grandfathering was provided, and is therefore subject to transparency requirements under the Action 5 Report (OECD, 2015). It states that the identification of the benefitting taxpayers will occur as follows:

• New entrants benefitting from the grandfathered IP regime: In the prior year peer review report, Italy was recommended to identify and exchange information on all new entrants to the IP regime to the extent they benefited from trademarks as soon as possible. The regime has been found to be actually harmful to the extent of extended grandfathering for taxpayers that obtained benefits with respect to trademarks. Italy released an Inter-Ministerial Decree, which came into force on 6 February 2018 and stipulates that every taxpayer who has benefitted as a new entrant from the grandfathered Italian Patent Box regime, shall indicate the option within the annual tax return. In addition, the taxpayer shall provide the following information to the Agenzia delle Entrate (competent body to issue ad hoc rulings and regime rulings relating to the Patent Box regime):

  • The type and the number of eligible assets (patent, trademarks, etc.) to which the option refers

  • the amount of the eligible income resulting from the use of the assets

  • (as regard options for trademark) information on relevant jurisdictions where related parties are fiscally resident

  These information, allow to exchange information on new entrants of the grandfathered Italian Patent Box regime who benefitted from trademarks, with the relevant exchange jurisdictions.

  As the information on the new entrants will only become available in 2018, Italy has not exchanged information on new entrants during the year of review. The recommendation from the prior year peer review report is therefore retained, and Italy is recommended to continue its efforts to identify and exchange information on new entrants to the grandfathered IP regime under the Inter-Ministerial Decree as soon as possible (ToR I.4.1.3).

662.  The patent box regime is otherwise compliant with the nexus approach, however the additional transparency requirements under the Action 5 report (OECD, 2015) are not applicable because:

• Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Italy amended its procedure to transmit information on future rulings to the Competent Authority on a quarterly basis. However, in practice the information was delayed in its transmission to the Competent Authority, on average within five months and particular delays were encountered with regard to rulings on preferential regimes. This is a continuing recommendation from the prior year peer review. Italy already amended its procedure to address this issue, which will be reviewed in the next peer review report.	Italy is recommended to continue its efforts to reduce the timelines for providing the information on future rulings to the Competent Authority.
Italy has introduced an Inter-Ministerial Decree to identify new entrants of the grandfathered IP regime. However, the Decree only came into force on 6 February 2018 and Italy was not able to identify all relevant information on new entrants to the IP regime that obtained benefits with respect to trademarks during the year of review. This is a continuing recommendation from the prior year peer review.	Italy is recommended to continue its efforts to identify and exchange information on new entrants to the grandfathered IP regime.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) International shipping and 2) Patent Box.

← 2.  Available here: www.agenziaentrate.gov.it/wps/content/Nsilib/Nsi/Normativa+e+Prassi/Risoluzioni/Archivio+risoluzioni/?page=normativa (accessed 20 November 2018).

← 3.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Italy has bilateral agreements with: Albania, Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China (People’s Republic of), Congo, Côte d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Ghana, Greece, Hong Kong (China), Hungary, Iceland, India, Indonesia, Ireland, Israel, Japan, Jordan, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova, Montenegro, Morocco, Mozambique, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Senegal, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Chinese Taipei, Tajikistan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Viet Nam and Zambia.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 4.  Partial exemption for income/gains derived from certain IP rights.