The Italien Supreme Court held that intra-group interest-free loans violates article 110(7); the Italien arm’s length provisions. Excerpt from the Judgement “…of the facts contained in the judgment under appeal, that the payments made by the parent company Edison spa to the foreign subsidiary Tanti Investimentos S.A, even though entitled ‘payments on account of future capital increases’, were not used for the declared purpose Instead, they were used for financial investments (which provided Edison with dividends subject to the reduced taxation provided for in Article 96 bis of Presidential Decree No. 917 of 22 December 1986 in force at the time), with the subsequent return of the capital to the company that paid Edison. Once it has been established that the reconstruction of the facts excludes the reason for the non-interest-bearing payment on account of a future capital increase and that the transfer of the sums of money must be attributed to the case of a loan (pursuant to Article 43 of Presidential Decree No. 917 of 22 December 1986 in force ratione temporis, now Article 46), the assessment carried out by the court of merit to identify the “business logic” pursued and to support the non-simulated but effective nature of the free loan contract becomes irrelevant. Since these are transactions with a foreign company controlled by the resident company, the rule on international “transfer pricing” established by the former Article 76, paragraph 5 of Presidential Decree No. 917 of 22 December 1986 (now Article 110, paragraph 7), according to which the amount of the loan is calculated on the basis of the taxable income, must be applied. In any event, the rule on international “transfer pricing” established by Article 76, paragraph 5, of Presidential Decree No. 917 of 22 December 1986 (now Article 110, paragraph 7), according to which the quantification of the income components must not be made on the basis of the ordinary parameter of the agreed consideration, but according to the derogatory criterion of the “normal value” of the goods sold or services rendered, defined by Article 9, paragraph 3, as the average price and consideration for the same goods or services sold or exchanged at the same time and place. In the specific case of sums given as a loan, which ordinarily bear interest unless expressly agreed otherwise (Art. 1815(1) of the Civil Code), the “normal value” is the average market interest charged at the time the money is given.” Click here for English translation Click here for other translation ...