The Italian Supreme Court clarified the evidentiary standards for transfer pricing adjustments involving intra-group loans. The case concerned the question whether a 2 % interest rate on a loan from an Italian subsidiary to its Luxembourg parent complied with the arm’s length principle. The court confirmed that transfer pricing rules are valuation provisions rather than anti-avoidance rules, but require the tax authority to prove, based on reliable comparables, that the agreed terms deviate from market standards. Since the tax authority failed to substantiate its adjustment, particularly with respect to the borrower’s creditworthiness, the reassessment was annulled.
