On 24 May 2022, the tax authority of Italy has issued Circular No. 16/E, that clarifies the application of the arm’s length principle (ALP) in transfer pricing as per Decree of 14 May 2018 and Decree No. 50 of 24 April 2017 as converted by Law No. 96 of 21 June 2017, that amended the definition of “normal value” for the purpose of the arm’s length principle to bring it more in accordance with the OECD principles. Specially, the Circular No. 16/E clarifies acceptable values within the arm’s length range.
Particularly, it includes that the relevant arm’s length range must be defined according to the OECD guidelines and if all the transactions identified are equally comparable, the entire range of values within the arm’s length range will be acceptable.
However, if some transactions in the range present comparability defects that cannot be reliably identified or quantified and rectified, a value within a narrow range of values may be accepted, such as the inter-quartile range or other percentiles, using statistical tools to strengthen reliability.
