Recent guidance for tax inspectors in Italy shows greater focus
on cross-border transactions.
To read a full copy of the Italian Tax Alert published by CMS
Adonnino Ascoli & Cavasola Scamoni please see below.
To view the article in full, please see
1. Executive summary
The circular letter No. 20/E of April 16, 2010, containing the
tax audit policies for the calendar year 2010, illustrates the
continuing interest of the Italian tax authorities in international
Companies should, in particular, review the documentation
supporting intercompany crossborder transactions with specific
reference to the 2007 and 2008 taxable periods.
On April 16, 2010, the Italian tax authorities released the
circular letter No. 20/E containing the policies for tax
assessments to be followed by tax offices in 2010.
We summarize below some of the highlights of the letter.
2.1 Tax audits on large-sized companies
According to the recommendations made by the Italian tax
authorities, for large companies, including those taxpayers with a
turnover with more than 25 million Euro, the following transactions
should be carefully analyzed by tax offices during 2010 tax
transactions aimed at exploiting international tax arbitrages:
e.g., with hybrid instruments or hybrid entities;
extraordinary and uncommon cross-border re-organizations;
Tax offices should also pay specific attention to significant
changes in the taxpayers' taxable income and to the creation of
net (tax) operating losses. The authorities believe that such
changes might stem from aggressive tax planning schemes by
taxpayers aimed at moving their taxable base from one country to
another, in the context of the financial crisis.
The circular letter points out the importance of co-operation by
the Italian authorities with the tax authorities of other
Finally, the 2010 audit by tax offices should focus on the 2007
and 2008 taxable periods.
2.2 Tax audits on medium-sized companies
According to the circular letter, tax audits on companies with a
turnover of 25 million Euro or less should be significantly
Specific attention should be paid to taxpayers with a low or nil
taxable income over a number of years, or with a VAT turnover not
in line with the type of company or, finally, with a VAT credit
position not justified by the type of business.
In addition, the following should attract the attention of the
tax offices when selecting companies to be audited:
transactions with non resident counterparties;
VAT credits utilized to offset taxes of a different
unusually high levels of interest paid;
unusually high costs for services;
extraordinary gains or losses;
significant and uncommon changes in the VAT turnover.
Tax assessments should specifically target taxpayers not audited
during the last four years.
During 2010 tax offices should audit the 2007 taxable period.
The 2008 taxable period should be audited soon after, once the
electronic procedures for the selection of risky taxpayers are
3. Short term actions
Companies should carefully review the documentation supporting
cross-border intercompany transactions. Ideally, as far as transfer
pricing is concerned, a qualitative and quantitative analysis
should be available in order to face possible challenges from the
Italian tax authorities.
Specific attention should be paid to the 2007 and 2008 taxable
4. How we can help
CMS has a network of international tax specialists that can help
you in reviewing, from each side of the deal, the documentation
supporting cross-border transactions.
In addition CMS has a litigation department specialized in
supporting the defence of tax audits at all levels, including the
Italian Supreme Court and the European Court of Justice.
This article was written for Law-Now, CMS Cameron
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