The Italian Supreme Court has established in a recent ruling (No. 19512 dated July 16, 2024, available at https://www.italgiure.giustizia.it/sncass/) that certain potential comparables cannot be preemptively excluded from the comparability analysis solely because they recorded lower profit or loss levels in certain years, since it is normal for entities that generate losses or lack certain accounting data to operate in a free market.

As to the facts, an Italian company (the applicant) applied a 5% margin for the services of call center provided to a subsidiary of the Netherlands under an outsourcing agreement. The applicant determined the margin of 5%, based on an analysis of comparability performed, using a database that included data of Italian companies. The tax authorities have increased the margin applicable to the 7,42% after removing from the analysis of comparability to certain entities that lacked certain accounting data and to certain entities that recorded losses in at least 2 of the 3 fiscal years that are relevant.

In particular, the Italian Supreme Court noted that the OECD Guidelines on transfer pricing for multinational enterprises and tax administrations (OECD Guidelines) state that one of the factors of comparability are the business strategies pursued by the parties. In fact, the OECD Guidelines allow for the inclusion in the analysis of comparability of entities that have schemes of penetration, that is to say, entities that, in order to penetrate a market or increase their market share, they could charge temporarily price their products lower than the prices charged for comparable products in the same market or engage temporarily in higher costs, achieving levels of earnings are lower than those of other entities that operate in the same market.

In addition, the court noted that the OECD Guidelines also provide that certain entities may be rejected as a comparable potential only in special situations, for example, business start-ups and companies in bankruptcy, if those peculiar situations obviously are not comparable appropriate to the specific case.