Italy | Transfer Price | Burden of Proof | Arm's length adjustment | CUP method | Hierarchy of methods | Supreme Court | Cassazione
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Supreme Court (Cassazione)
Civil Judgment Sec. 5 No. 26695 Year 2022
President: CIRILLO ETTORE
Rapporteur: NAPOLITANO LUCIO
Publication date: 12/09/2022
JUDGMENT
on the appeal registered under No. R.G. 19673/2016, brought by AGENZIA DELLE ENTRATE, in the person of the Director pro tempore, represented by the Avvocatura Generale dello Stato, with an address for service in Rome, via dei Portoghesi, 12, at the Avvocatura Generale dello Stato - main appellant and cross-appellant with conditional appeal -
against
FERRARI S.p.A, in the person of the special attorney Antonio Barbera, in accordance with deed by notary Tommaso Vezzi, Rep. no. 70099, Coll. no. 17422, of 14 March 2018, represented and defended by attorneys Cristiano Caumont Caimi, Giuseppe Pizzonia and Giuseppe Russo Corvace, electively domiciled in Rome, Via della Scrofa, no. 57 at the office of attorney Cristiano Caumont Caimi, in accordance with the special power of attorney in the margin of the brief dated 7 February 2019, in substitution of the previous defender Francesco Fratini
- Counterclaimant and cross-claimant on a conditional basis - Against the judgment of the Regional Tax Commission of Emilia - Romagna, No 260/2016, delivered on 26 January 2016, filed on 2 February 2016, not notified
Hearing the report delivered at the public hearing on 28 September 2021 by Counsel Lucio Napolitano
Hearing of the Public Prosecutor, in the person of the Deputy General Prosecutor, Dr Mauro Vitiello, who concluded by requesting that the main appeal be declared inadmissible and the conditional cross-appeal be absorbed;
Hearing, for the Attorney General of the State, Mr Alessandro Maddalo, lawyer;
Hearing of Laura Puddu, lawyer, for the defendant and cross-appellant;
FACTS OF THE CASE
The Regional Tax Commission (CTR) of Emilia - Romagna, with ruling no. 260/11/16, filed on 2 February 2016, unnotified, rejected the appeal of the Revenue Agency against Ferrari S.p.A. against the first instance judgment handed down between the parties by the Provincial Tax Commission (CTP) of Modena, which had upheld the appeal brought by the well-known car manufacturer against the notice of assessment, with which the tax authorities, for IRAP purposes for the tax year 2004, accepting the findings of the Guardia di Finanza report, had accused the company of having applied prices lower than the 'normal value' in transactions with its foreign subsidiaries, in particular, in the case in point, with the US company Ferrari NA (North America) Lmt, which is part of the same group, in breach of Article. 110, paragraph 7, of Presidential Decree No. 917/1986 (TUIR).
The CTR - having preliminarily disregarded the taxpayer's grievance in its cross-appeal against the first instance judgement, which had alleged that the contested assessment was null and void due to the failure to carry out the prior administrative hearing - on the merits, held that the rule set forth in Article 110, paragraph 7, TUIR, which is applicable to the taxpayer, was not applicable to the taxpayer. On the merits, considering that the provision of Article 110, paragraph 7, TUIR, on the subject of transfer pricing, constituted an anti-avoidance clause, the CTR agreed with the decision of first instance which, "with adequate reasoning", had found that the Administration had not discharged the burden of proof of tax avoidance attributed to the appellant company, for having charged prices to foreign subsidiaries that were lower than the normal value, without having taken into due account the comparison of the prices charged both to the subsidiaries and to the independent companies, which could be seen from the copious documentation produced".
The CTR further observed that "[a]nd also with regard to the method for verifying the "normal value", the Revenue Agency itself, in Circular No. 32 of 22/09/1980, had suggested the use of the CUP method instead of the less reliable TNMM method "which is not advisable due to its considerable approximation and arbitrariness' for which reason the Office's objection must be considered inadmissible".
The Agenzia delle Entrate appealed against the CTR's ruling on four grounds, to which the company responded with a counter-appeal and a conditional cross-appeal with two grounds, submitting, in the alternative, a question of the constitutionality of the provisions on the cross-examination and reference for a preliminary ruling under Article 267 TFEU in order to verify their compatibility with European Union law, should it not be considered possible to interpret them in a constitutionally and/or Community-oriented manner.
The Agenzia delle Entrate, in turn, resists the cross-appeal with a counter-appeal.
In the course of the proceedings, the taxpayer filed an application for a facilitated settlement of the dispute, pursuant to Article 6 of Law Decree No. 119 of 23 October 2018, converted, with amendments, by Law No. 136 of 17 December 2018.
The tax authorities then refused to grant the facilitated settlement of the dispute on the grounds that the payment made was insufficient, on the assumption that the Revenue Agency had not been totally but only partially unsuccessful in the proceedings at first instance, but the taxpayer did not appeal against this refusal, hence the subsequent request for the case to be heard.
Both parties, who in proximity to the original fixing of the meeting in chambers, had filed pleadings, pursuant to Article 380-bis. l, of the Italian Code of Civil Procedure, the company also alleging the appointment of new defence counsel to replace the defence counsel originally appointed, requested that the case be set for public hearing, where at today's hearing the case, also following the order issued on 12 April 2021, comes to be heard together with the other connected cases indicated therein.
REASONS FOR THE DECISION
- By its first plea, the Agenzia delle Entrate alleges infringement of Article 110(7) of Presidential Decree No 917 of 22 December 1986, in relation to Article 360(1)(3) of the Code of Civil Procedure, assuming that the judgment under appeal is erroneous insofar as, referring to certain decisions of this Supreme Court, it affirmed that the provision under the heading constitutes an anti-avoidance clause, aimed at preventing the shifting of taxable material from Italy in favour of lower foreign taxation and that, consequently, the tax authorities are required to prove the conditions of the avoidance.
- With its second ground of appeal, the tax authorities denounce the breach or false application of Article 57 of Legislative Decree No. 546 of 31.12.1992, in relation to Article 30 (recte 360), first paragraph, no. 4, of the Code of Civil Procedure. Noting how the dispute also - and primarily - concerned the validity of the method used by the Office to determine the normal value, the company's defence having focused not only on the "lack of proof of an elusive plan" (pp. 5-7 of the application initiating proceedings), on the alleged "unlawful 'retroactive' application of the 'Berry ratio' criterion" underlying the TNMM (Transactional Net Margin Method) method highlighted by a study commissioned by Ferrari S.p.A. itself from Pricewaterhouse Cooper Inc. (Pwc) in 2005, as being more reliable, the appellant complains that the decision of the CTR was erroneous in so far as it affirmed the inadmissibility of the 'late objection of the Office' concerning the method used to check the normal value, given that what the Office had argued against the applicability of the CUP (Comparable Uncontrolled Price) method adopted by the appellant, "in the absence of the elements necessary for the comparability of the sales of goods with different characteristics, pertaining to functionally different subjects, occurring with non-homogeneous contractual clauses, in economically different national contexts and between companies with different strategies", constituted a mere defence with respect to the second ground of contestation of the legitimacy of the assessment carried out by the company.
- By its third ground of appeal, the appellant complains of 'invalidity of the judgment for lack of reasoning and/or apparent reasoning. Infringement of Article 36(2)(4) of Legislative Decree No 546 of 31 December 1992 in relation to Article 360(1)(4) of the Code of Civil Procedure. "It complains that the decision of the Regional Tax Commission, as reported above, merely accepted the company's argument in an uncritical and apodictic manner, omitting to examine, albeit briefly, the complex issues raised by the Office concerning the comparability of the transactions alleged by the counterparty and the usability of the CUP method instead of the TNMM method used by the Office and defined as the only one correctly applicable by the Pwc consultancy of December 2005.
- Finally, by its fourth ground of appeal, the appellant claims infringement of Article 2697 of the Civil Code, also in conjunction with Article 110(7) of Presidential Decree No 917/1986, in relation to Article 360(1)(3) of the Code of Civil Procedure, in so far as the judgment under appeal failed to take account of the fact that the Office had, in any event, provided several items of evidence also supporting the other party's intention to evade tax, given that, since the authorities had pointed out that it was only from June 2005 that Ferrari S.p.A. had changed its transfer pricing policy in order to take advantage of the tax benefits connected with the introduction of the consolidated tax group and the existence of losses for the consolidating company FIAT S.p.A, it must have been inferred, on the contrary, that the localisation of a higher taxable income in other countries, by means of transfer pricing policies lower than their normal value, was considered advantageous to the company.
- With the first ground of the conditional cross-appeal, should the main appeal be held to be well-founded, the appellant company complains of infringement and misapplication of Article 12(7) of I. No. 212/2000 and, in any event, where applicable, of Article 37 bis, paragraph 4, of Presidential Decree No. 600/1973, in relation to Article 360, first paragraph, no. 3, of the Code of Civil Procedure, insofar as the CTR rejected the company's cross-appeal against the judgment at first instance, not considering that the provision of Article 12(7) of I. P.R.D. no. 600/1977 should be applied in the case in question. 212/2000, since it was not a matter of a "desk check" as held by the CTR, but of an inspection carried out at the company's premises resulting in the issue of an assessment report, which was followed by the notification of the notice of assessment without the time limit provided for by the aforementioned provision having been observed. The taxpayer further pointed out that, once the CTR had qualified the provision of Article 110(7) TUIR as an anti-avoidance provision, it was necessary to hold a prior hearing in accordance with the procedure provided for in Article 37 bis(4) of Presidential Decree No. 917/1986, as applicable ratione temporis.
- By the second ground of cross-appeal, the appellant, again subject to the assumption that the tax authority's main appeal will be upheld, alleges infringement or misapplication of the combined provisions of Article 12(7) of I. 212/2000, 1, paragraph 1, 6, paragraphs 2 and 5, 8, 10, paragraph 1, I. n. 212/2000, 36 - bis, 36 - ter, 37 -bis, paragraph 4 and 38, paragraph 7 (as replaced by art. 22, paragraph 1, of d. l. no. 78/2010), d.P.R. no. 600/1973, 62 - bis of d.l. no. 331 of 30 August 1993, converted, with amendments, by I. no. 427 of 29 October 1993, 7 and 10, I. no. 241/1990, also by way of a constitutionally oriented interpretation in relation to Articles 3 (also from the point of view of constitutional reasonableness), 10, 24, 53, 97, 111 and 117 of the Constitution and/or by way of a Community-oriented interpretation in relation to Articles 41, 47 and 48 of the Charter of Fundamental Rights of the European Union and the relevant drafting by the EU Court of Justice; as well as, if necessary, raising an objection of constitutional illegitimacy of the same discipline in relation to the parameters indicated above and/or an objection of community illegitimacy in relation to the parameters also indicated above, in relation to Article 360, first paragraph, no. 3, of the Code of Civil Procedure
- As a preliminary point, the counter-appellant's objection of inadmissibility of the main appeal for failure to challenge all the concurrent and autonomous rationes decidendi underlying the contested ruling must be rejected.
7.1. The appellant company claims that there is a lack in the appeal as brought by the tax authorities - in the face of the specific criticism of the first ratione ratio referring to the failure to satisfy the burden of proof incumbent on the Office itself, concerning the shifting of profits through the application of prices lower than the normal value of the goods sold, from which derives the tax advantage for the taxpayer of subjecting taxable material to a level of taxation lower than that in Italy - the specific challenge to the second ratio decidendi, relating to the demonstration by the company of the existence of comparable transactions capable of proving the suitability of the CUP method chosen and, therefore, the correspondence of the amounts entered in the accounts to the normal value, with the consequent absence of tax benefits withdrawn or obtainable by the company.
7.2. A reading and overall analysis of the appeal, following the outcome of the examination, also specific to each individual plea in law to which it is entrusted, make it possible to rule out the merits of that plea in law, specifically with reference to the content of the third plea.
The third ground of appeal, under the heading 'Nullity of the judgment for failure to state reasons and/or apparent grounds', criticises the judgment under appeal in so far as, according to the tax authorities, with regard to the specific issue of the taxpayer's inability to use the CUP method, the CTR merely accepted the company's argument uncritically.
7.3. In reaffirming the policy expressed by the United Sections of this Court (see Court of Cassation SU 25 March 2013, no. 7831; Court of Cassation SU 4 November 2009, no. 23318; Court of Cassation SU 6 March 2009, no. 5456) according to which "[a]nd also in the light of the constitutional principle of the reasonable duration of the trial, according to which the primary aim of the trial is the realisation of the right of the parties to obtain a reply on the merits, the cross-appeal brought by the party that is totally victorious in the trial on the merits, which involves preliminary questions of procedure, including those relating to jurisdiction or", as in the present case, "preliminary questions on the merits, is in the nature of a conditional appeal, irrespective of any express indication by the party, and must be examined as a matter of priority only if the questions relating to the substance of the case or preliminary questions on the merits, which can be raised of their own motion, have not been the subject of an express or implied decision (where the latter is possible) by the court hearing the case on the merits. If, on the other hand, such a decision has been made, such cross-appeal must be examined by the Court of Cassation, only in the presence of the actuality of the interest, which exists only in the hypothesis that the main appeal is well-founded". 12, paragraph 7, of I. No. 212/2000, re-proposed by the company with a specific ground of cross-appeal, the CTR has expressly ruled, rejecting it, it is therefore appropriate to start from the examination of the third ground of main appeal for obvious reasons of continuity of presentation with what has been observed above.
7.3.1. That ground is unfounded.
Indeed, in this regard, it is worth noting first of all how the judgment under appeal is reasoned per relationem to the ruling at first instance and not to the content of the Administration's appeal.
This Court has repeatedly clarified that "On the subject of appeal in cassation, it is null and void, pursuant to Article 360, paragraph 1, no. 4 of the Code of Civil Procedure, for violation of Article 132, paragraph 2, no. 4 of the Code of Civil Procedure, the only apparent motivation, which does not constitute the expression of an autonomous deliberative process, such as the appeal judgement motivated "per relationem" to the first instance judgement, through a generic sharing of the reconstruction in fact and of the arguments carried out by the first judge, without any critical examination of the same on the basis of the grounds of appeal" (cf. among many, more recently, Cass. sez. 5, ord. 3 May 2019, no. 11667; Cass. sez. lav. 25 October 2018, no. 27112; more generally, -on the subject of apparent motivation, Cass. SU 7 April 2014, no. 8053; Cass. SU 3 November 2016, no. 22232).
7.3.2. In the case at hand, as already noted above, the judgment under appeal did not limit itself to stating that it agreed with the first instance decision which, "with adequate reasoning", had found that the Administration had not discharged the burden of proof of tax avoidance attributed to the appellant company, for having charged prices to its foreign subsidiaries that were lower than the normal value, without having taken due account of the comparison of the prices charged both to the subsidiaries and to the independent companies, which can be seen from the copious documentation produced", but, on the one hand in the expositive part of the course of the proceedings, it gave account of the articulation of the Office's appeal against the judgment at first instance, in particular, as far as it is relevant here, with regard to the objection of the "applicability of the CUP method adopted by the appellant (and, more generally, of the methods defined as 'traditional' by the OECD), in the absence of the elements necessary for the compatibility of sales of goods, pertaining to functionally different subjects, which took place with non-homogeneous contractual clauses, in economically different national contexts and between companies with different strategies"; on the other hand, it then independently observed, with respect to the first instance decision, that "[a]ccording to the "normal value" control method, the same Revenue Agency, in Circular no. 32 of 22/09/1980, had suggested the use of the CUP method instead of the less reliable TNMM method "which is not very advisable due to its considerable approximation and arbitrariness", so that the Office's grievance must be deemed inadmissible". It follows that the qualification of the rule in the sense of anti-avoidance or not (on which, for completeness, infra, par. 8.5.2), had no concrete relevance in the contested decision, which excluded the existence of the differential between the normal value of the goods sold to the foreign affiliate and the price actually charged in the reference transactions.
7.3.3. As can be seen, therefore, the ruling of the Regional Tax Commission rejected the issue in question raised by the Administration with the appeal, after a critical examination of the relative ground of appeal, not only adopting the first instance ruling on this point, but adding its own independent considerations that made the relative ratio decidendi clearly recognisable, so much so that, in fact, the Administration developed its own ground of censure, which will be examined in the context of the following paragraph.
- The first and fourth pleas in law of the main appeal may be examined together because they are intimately connected.
They are well founded.
It is worthwhile, in this connection, to make an appropriate reconnaissance of the legal framework of reference according to the rules applicable ratione temporis, giving a brief account of its subsequent development.
8.1. Article 110, Paragraph 7 of the TUIR, in its wording in force in relation to the year of assessment, provides, to the extent relevant herein, that "[t]he components of income arising from transactions with companies not resident in the territory of the State, which directly or indirectly control the enterprise, are controlled by it or are controlled by the same company that controls the enterprise, shall be valued on the basis of the normal value of the goods sold, the services rendered and the goods and services received, determined in accordance with Paragraph 2, if an increase in income results therefrom".
The concept of 'normal value' of the components can be deduced from Article 9(3) of the TUIR, according to which '[w]ith the exception of what is established in paragraph 4 for the goods referred to therein, normal value means the average price or consideration practised for goods and services of the same or similar kind, in conditions of free competition and at the same stage of marketing, at the time and place where the goods or services were acquired or rendered, and, failing that, at the nearest time and place. For the determination of the normal value reference shall be made, as far as possible, to the price lists or tariffs of the person who supplied the goods or services and, failing that, to the price lists and tariffs of the chambers of commerce and to professional tariffs, taking into account customary discounts. For goods and services subject to price regulation, reference shall be made to the measures in force'.
8.2. Article 110, paragraph 7, TUIR, was then amended by Article 59, paragraph 1, of Decree-Law No. 50 of 24 April 2017 (entered into force on 4 June 2017) converted, with amendments, by I. 21 June 2017, no. 96), thus establishing, in its wording, that "[t]he components of income deriving from transactions with companies not resident in the territory of the State, which directly or indirectly control the enterprise, are controlled by it or are controlled by the same company that controls the enterprise, are determined by reference to the terms and prices that would have been agreed between independent parties operating in conditions of free competition and in comparable circumstances, if an increase in income results therefrom. The same provision also applies if it results in a decrease in income, according to the terms and conditions set forth in Article 31-quater of Presidential Decree No. 600 of 29 September 1973. By decree of the Minister of Economy and Finance, guidelines for the application of this paragraph may be determined on the basis of international best practices'.
8.3. The primary rules were then supplemented by the Ministerial Decree of 14 May 2018, which dictated the guidelines for the application of the new provisions of Article 110(7) TUIR.
Article 4 of the aforementioned ministerial decree, in particular, outlines and defines five methods for the valuation of a controlled transaction on the basis of the arm's length principle, stating that said valuation is determined by applying the method most appropriate to the circumstances of the case.
Among those methods, with reference to the subject-matter of the present dispute, the price comparison method (CUP), based on the comparison of the price charged in the supply of goods or services rendered in a controlled transaction with the price charged in comparable non-controlled transactions, adopted, for the year of reference, by the taxpayer company (which then turned, as from the year 2007, on the basis of a study commissioned from a leading consulting firm, which became available towards the end of 2005 on the method of the net margin of the transaction) and the latter (TNMM), based on the comparison between the ratio between the net margin and an appropriate commensurate base, which may be represented, depending on the circumstances, by costs, revenues or assets, realised by an enterprise in a controlled transaction and the ratio between the net margin and the same base realised in comparable non-controlled transactions, instead deemed more reliable in the specific case by the Tax Administration, taking into account the remarks made by the auditors.
8.4. Although the purpose of the legislative amendment was to bring the national legal system into line with the criteria for identifying transfer prices between multinational enterprises outlined by the OECD, the interpretation perspective had already previously evolved in line with the principle of free competition as set forth in Art. 9- of the OECD Model Convention, which provides for the possibility of subjecting to taxation the profits arising from intra-group transactions that have been governed by terms different from those that would have been agreed upon between independent enterprises, in comparable transactions carried out in the free market, it having to be noted that already the OECD Guidelines of 1995 (OECD, Guidelines, 1995) provided that
"[t]he objective of selecting a transfer pricing method is always to find the most appropriate method for a particular case. To this end, the following should be taken into account in the selection process: the respective advantages and disadvantages of the methods recognised by the OECD; the consistency of the method considered with the nature of the controlled transaction, as determined in particular through functional analysis; the availability of reliable information (in particular on independent comparables) necessary for the application of the selected method and/or the other methods; the degree of comparability between controlled transactions and transactions between independent enterprises, including the reliability of comparability adjustments that are necessary to eliminate significant differences between them. No method can be used in all eventualities and it is not necessary to demonstrate the non-applicability of a given method to the circumstances of the particular case".
8.5. Considering also the soft law nature of the recommendations contained in the OECD Commentary, which the United Sections of this Court (see Court of Cassation, SU 25 March 2021, no. 8500, p. 35, in the grounds) have recognised as being peculiar to the OECD Commentary, the ruling issued by the CTR is vitiated by the alleged errors in iudicando referred to in the first and fourth grounds of the main appeal.
8.5.1. In fact, in addition to stating reasons by reference to the decision of first instance - which, in considering necessary the application of the CUP method, due to unclear "appropriate updates", had observed that the Office could not base an assessment for the year 2004 on the retroactive application of the TNMM method, nor had it contested, with reference to each individual car, the reasons why the price was lower than the market price - it dwelt, therefore, on the alleged anti-avoidance nature of the provision of Article 110, paragraph 7, TUIR, which is not in line with the provisions of Article 110, paragraph 7, of the Italian Income Tax Code. Article 110, paragraph 7 of the Consolidated Income Tax Law (TUIR), and therefore concludes that the onus of proving that the de facto conditions for the avoidance of tax evasion exist is, in principle, on the Administration that intends to make the consequent adjustments. 32 of 22 September 1980, had suggested the use of the CUP method in place of the "less reliable" "TNMM" method, "not very advisable because of its considerable approximation and arbitrariness".
8.5.2. In this, the contested decision ignored the fact that the development of the jurisprudence of this Court, already at the time of the issuance of the judgment rendered by the CTR, had abandoned the consideration of the nature of Article 110, paragraph 7, TUIR, as an anti-avoidance clause (see Cass. sez. 5, 18 September 2015, no. 18392; hereinafter see also Cass. sez. 5, 15 April 2016, no. 7493; Cass. sez. 5, 30 June 2016, no. 13387; Court of Cassation, section 5, 15 November 2017, no. 27018; Court of Cassation, section 5, 19 April 2018, no. 9673; most recently, while awaiting the publication of this decision, Court of Cassation, section 5, 17 May 2022, no. 15668), which leads to the further principle, affirmed by the case law of this Court, according to which "[i]n the matter of determining business income, the rules set forth in Article 110, paragraph 7, Presidential Decree no. 917 of 1986, aimed at taxing the income of a company, are not applicable to the taxable person. 917 of 1986, aimed at repressing the economic phenomenon of "transfer pricing", i.e. the shifting of taxable income as a result of transactions between companies belonging to the same group and subject to different national laws, does not require the administration to prove the avoidance function, but only the existence of "transactions" between related companies at a price apparently lower than the normal price, while it is for the taxpayer, by virtue of the principle of proximity of proof under Article 2697 e.g. and on the subject of tax deductions, the burden of proving that such 'transactions' took place for market values to be considered normal within the meaning of Art. 9, paragraph 3, of the same decree, such being the prices of goods and services practiced in conditions of free competition, at the same stage of marketing, at the time and place where the goods and services were purchased or rendered and, failing that, at the nearest time and place and with reference, as far as possible, to price lists and rates in use, therefore not excluding the usability of other means of proof" (cf, more recently, Cass. sez. 5, orci. 19 May 2021, no. 13571 and already, in a conforming sense, Cass. sez. 5, 8 May 2013, no. 10742).
8.5.3. It should also be noted, in relation to the concluding passage of the grounds of the contested judgment, how the same Tax Administration had already specified in Circular No. 42/IIDD/1981 that the adequacy of a transfer pricing method must be assessed on a case-by-case basis.
8.6. In conclusion, it should be recalled how the aforementioned Court of Cassation No. 15668/2022, with specific reference to the Transactional Net Margin Method or TNMM, in referring to Section B of Part III of Chapter II of the OECD Guidelines of 2010 which regulates it, as well as, similarly, the subsequent edition of 2017, had the opportunity to affirm the principle, which must be given further continuity herein, according to which "[i]n the matter of determining business income, the rules under Article 110, paragraph 7, of Presidential Decree No. 917 of 1986, aimed at determining the transfer price of a company, are not applicable to the transfer pricing method. 917 of 1986, aimed at repressing the economic phenomenon of "transfer pricing", i.e., the shifting of taxable income following transactions between companies belonging to the same group and subject to different national regulations, requires the determination of the weighted transfer prices for similar transactions carried out by companies competing on the market, for which purpose it is possible to use the method developed by the OECD that is based on the determination of the net margin of the transaction (so-called "TNM"), which is the basis for the determination of the net margin of the transaction. "TNMM"), provided that the period of investigation is selected, the comparable companies are identified, the appropriate accounting adjustments are made to the financial statements of the tested party, due account is taken of the differences between the tested party and the comparable companies in terms of risks assumed or functions performed, and a reliable indicator of the level of profitability is assumed".
These are, in all evidence, factual findings that were totally omitted by the CTR in identifying the most appropriate transfer pricing method in this case.
- The judgment under appeal must therefore be set aside, upholding the first and fourth pleas in law of the main appeal, while, in light of the foregoing considerations, the second plea in law of that appeal, remains absorbed.
- In view of the outcome of the examination of the main appeal by the tax authorities, the interest of the opposing company in examining the conditional cross-appeal, the first plea of which is well founded, remains.
10.1. In the contested judgment itself it is stated, in fact, that the notice of assessment from which the present dispute originated stems from an assessment report drawn up by the Modena Finance Police on 22 December 2009, drafted, therefore, evidently, following access for the purpose of acquiring documents.
10.2. The qualification, contained in the contested judgement, of the nature of the assessment as a "desk" is therefore erroneous and led the contested decision to deny the applicability in this case of the time limit under Article 12, paragraph 7, of I. No. 212/2000.
10.3. Contrary, in fact, to the circumstance that the notice of assessment was served on 29 December 2009, the judgment under appeal is at odds with the principle of law repeatedly affirmed by the jurisprudence of this Court, according to which "[i]n the matter of assessment, the guarantee of the period of grace provided for in Article 12, paragraph 7, of I. no. 212 of 2000, as an expression of the principles of the protection of the rights of the defence and of the right to a fair hearing, is not applicable in this case. 212 of 2000, as an expression of the principles, deriving from the Constitution, of cooperation and good faith between the administration and the taxpayer, also applies to the so-called instantaneous inspections, i.e. those aimed at acquiring only the documentation on which the assessment is based, so that, even in such a case, a tax measure issued "ante tempus" is unlawful, unless there are specific reasons of urgency" (see, inter alia, Cassation of Cassation, section III, paragraph 2, of the Italian Supreme Court, cited above, and the case law cited above, cited above, in particular, in the paragraph 2, paragraph 3, of Article 12, of I. No. 212 of 2000), inter alia, Cass. sez. 6-5, ord. 12 April 2019, no. 10388, in continuity with the principles affirmed, in general, on this matter, by Cass. SU 29 July 2013, no. 18184 and further clarified by Cass. SU 9 December 2015, no. 24823, improperly referred to, in relation to the concrete case at hand, by the decision of the CTR here appealed).
- The second conditional cross-appeal plea remains, for what has been observed in the previous paragraph, absorbed, and therefore irrelevant for the purposes of the decision, becoming both the question of constitutional legitimacy and the request for a preliminary reference to the Court of Justice of the European Union subordinately raised by the counter-appellant.
- The judgment under appeal must therefore be set aside, upholding both the main appeal, in relation to the first and fourth pleas in law, and the first plea in law of the cross-appeal, the acceptance of which, since it concerns a preliminary question which does not require further factual investigation, means that the case may be decided on the merits, pursuant to Article 384(2) of the Code of Civil Procedure, with the original appeal brought by the taxpayer company being upheld.
- The reciprocal loss of jurisdiction in relation to the issues dealt with in the judgment of legitimacy and the evolution of the jurisprudence on the matter of transfer pricing justify the set-off of the costs between the parties of the entire proceedings.
P.Q.M.
Upholds the main appeal in relation to the first and fourth pleas, rejects the third and absorbs the second.
Also upholds the conditional cross-appeal in relation to the first plea, the second being absorbed.
Sets aside the contested decision and, ruling on the merits, upholds the taxpayer company's original appeal.
Orders the parties to pay the costs of the entire proceedings.
Thus decided in Rome in the council chamber of 28 September 2021 The Counsellor Extender
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