Following an audit of the Italian company Solvay Italia, the tax authorities adjusted the amounts charged for sales of goods (soda ash and sodium bicarbonate) by that company to foreign companies belonging to the same group and, in particular, to the parent company Solvay s. a. a. in Belgium. According to the tax authorities the prices charged in relation to the aforesaid intra-group sales were considerably lower than the “normal value” of the sales determined in accordance with the CUP method and in particular, the prices charged in Italy by the seller company itself when dealing with independent parties, which were over 44% higher than those resulting from the aforesaid intra-group transactions. The tax authorities issue notice of assessment for FY 1997, in an amount of EUR 1,023,862. Solvay s.a. appealed against the notice of assessment. Solvay s.a.’s appeal was upheld by both the first and second instance courts, against whose decision the tax authorities then filed an appeal to the Supreme Court. Judgement of the Supreme Court The Supreme Court ruled in favour of the tax authorities and set aside the decision of the lower court. Excerpts from the judgement “In view of the above, it is – indeed – quite clear that in the application of the “price comparison” method, preference should be given to the so-called internal comparison, based on the price lists and tariffs of the entity which supplied the goods or services in the relationship between the controlled company and an independent company, given that it is to the above-mentioned documentary elements of comparison that the Administration must first of all refer, “as far as possible”, and taking into account any “customary discounts”. Secondly, the Administration will have to refer to the price lists and price lists of the chambers of commerce, or to professional tariffs, when examining comparable transactions between independent companies (so-called external comparison) belonging to the same market. Finally, and in a completely subsidiary and supplementary, the Office may have recourse – under the first part of paragraph 3 of Art. 9 mentioned above – to the price “averagely practiced” and in “conditions of free competition” for similar goods or services, “in the time and place where the goods or services have been acquired or provided, and, failing that, in the nearest time and place”; the latter could well be determined by foreign markets closer to the national market of the seller.” “Therefore, in order for the “normal value” criterion to be applicable, it is necessary and sufficient that a similar product is sold in Italy, in the absence of legal constraints on the determination of the price, i.e. that in the State of the seller there is no price established by the legislature for goods of the same kind as those subject to the transaction subject to verification (Court of Cassation 13233 (01)). ” Click here for English translation Click here for other translation ...