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[May 25th, 2018] Transfer Pricing Regulation Guidelines

Associated Enterprises
The Decree provides for a broad definition of “associated enterprises”: two enterprises are associated when (i) one participates in the management, control or capital of the other, or (ii) both are jointly subject to interest in management, control or capital by a third enterprise.
The concept of "participation in management, control or capital" covers both the case of control in the capital, voting rights or profits, and the case of a dominant influence, provided that it is based on shareholding or contractual obligations.
According to the first comments, this broad concept of associated enterprises should be applicable not only to companies but also to natural persons and permanent establishments.
Two transactions are comparable when there are no significant differences affecting the financial indicator that can be used according to the most appropriate method or, if differences exist, they can be adjusted. The Decree then sets out the five economic characteristics (so-called "comparability factors") to be considered in the analysis.
Methods for determining transfer pricing
The Decree sets out the five methods that can be used for a transfer pricing analysis:
a)      Comparable uncontrolled price method,
b)     Resale price method,
c)      Cost plus method,
d)     Transactional net margin method,
e)      Profit split method.
These methods must be selected on the basis of specific criteria of appropriateness, identified by the Decree.
The Decree establishes a preference for traditional methods (methods (a) to (c)) over financial methods (methods (d) to (e)).
Of particular importance is the prohibition imposed on the tax authorities during tax audits to deny the method adopted by the taxpayer, if his/her choice is based on an adequate assessment of the criteria of appropriateness.
Aggregated transactions
Two or more closely related transactions may be considered as a single transaction for the purpose of comparability analysis and shall be considered as “aggregated transactions”.
Range of values at arm's length
The entire range of values resulting from the comparability analysis is to be considered in accordance with the arm's length principle.
In case of tax audits, the tax authorities shall make an adjustment in order to bring the financial indicator within the range, without prejudice to the taxpayer's right to demonstrate that, in the case in question, the operations carried out, even if outside the range, are at arm’s length.
Low value-adding services
For low value-adding services, a simplified approach is introduced according to which the service value is equal to the sum of all the relevant costs plus a 5% mark up, provided that the taxpayer holds all the supporting documentation.
The documentation to be prepared for the purposes of penalty protection is considered suitable if it provides the data and information necessary to carry out a transfer pricing analysis, even if the taxpayer applies a different valuation method or selects different comparable transactions compared to the Agency. The presence of minor errors or omissions shall not prevent the penalty protection regime application.
The Decree refers, however, to a further regulation to be issued by the Revenue Agency, which shall specifically define the documentation required, in line with international best practices.
The Decree contains a final clause that allows the Revenue Agency to issue additional implementing measures that take into account updates to the OECD Guidelines.

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