The New Italian Law on International tax disputes settlement

The Legislative Decree no. 49 of 10 June 2020 (the “Decree”) implementing European Union (“EU”) directive no. 2017/1852 on tax dispute resolution mechanisms in the EU has been published.

The Decree came into force on 25 June 2020 and introduces new rules relating to mutual agreement procedures (“MPAs”) or other tax dispute resolution procedures between the Italian tax authority and the competent Authorities of the EU Member States deriving from the interpretation and the application of the tax treaties to avoid double taxation and the Convention no. 90/436 / EEC (“EU Convention”) relating to the elimination of double taxation in the case of transfer pricing (“TP”) adjustments. However, the procedures to resolve general issues relating to the interpretation and application of the abovementioned treaties and Convention are excluded from the scope of the Decree.

The provisions of the Decree apply to MAP applications filed from 1 July 2019 on controversial issues regarding fiscal year (“FY”) starting 1 January 2018 and subsequent tax periods. They trace the EU Convention, extending the scope and providing for further remedies aimed at overcoming the critical issues encountered in Italy in the operation of the EU Convention, with particular regard to the access, duration and effective conclusion of the procedure (see in this respect also Organisation of Economic Cooperation and Development (“OECD”) (2020), Making Dispute Resolution More Effective – MAP Peer Review Report, Italy (Stage 2): Inclusive Framework on BEPS: Action 14).

In particular, the Legislative Decree introduces more detailed rules on international tax dispute settlements on the transfer pricing adjustments between EU States which are discussed here below.

Under the new rules, in the case of a disagreement between the States about the preventive assessment of admissibility for the purpose of the MAP application, there is the possibility to apply to a “Consultative Commission” and request its opinion about the eligibility; in this regard, it is also foreseen that the taxpayer is empowered to file an appeal by domestic courts even in the event of refusal of access to the MAP procedure and / or failure to establish the Consultative Commission. Before this new rule, the assessment of inadmissibility of the MAP application was not challengeable under Italian domestic law. 

Furthermore, as far as the result obligation of the procedure is concerned, the taxpayer, in the case of a failure to reach the agreement by the competent authorities of the Member States involved, is granted the right to take action by requesting the establishment of a “Consultative Commission”, therefore the crucial step towards the arbitration phase.

It should be stressed that, thanks to the new rules, the access to the MAP is also permitted in the case of tax dispute resolution by means of alternative procedures which lead to the definitive nature of the tax involved (except for the so-called “ravvedimento operoso” and “conciliazione giudiziale”).

The access to the arbitration phase is now also granted in the case of pending domestic judgements, where, on the contrary, pursuant to art. 7, paragraph 3 of the EU Convention, the transition to the advisory commission is envisaged only if the taxpayer “has left the deadline for submitting the appeal or has given up the appeal before a judgment has intervened”. The Decree provides for a strengthening mechanism for internal judgment’ suspension which also automatically entails the suspension of tax collection. For more detail, the domestic judgement suspension can be requested at the time of the application to start the procedure, without waiting for the MAP admission by the competent Authorities, and it no longer requires a joint action of the parties, but a unilateral request by the taxpayer is permitted.

The current efforts of the Italian Legislator and Authorities, which focus on the implementation of more effective EU TP dispute resolution mechanisms, are undoubtedly welcomed. However, it seems necessary to include the associated enterprises rule (article 9(2)) through the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting”, so as to grant a corresponding adjustment or access to MAPs with regard to the double taxation that may otherwise result from a primary TP adjustment.