Italian Free-Guarantee Ruling Boosts Transfer Pricing Toolkit

The Italian Supreme Court’s recent acceptance of a subsidiary’s no-fee guarantee for a parent company’s loan highlights what some tax practitioners see as growing willingness by courts to accept purely economic reasons for not charging intragroup fees, at least in the area of corporate finance.

Preserving the corporate group’s viability during the parent’s liquidity crisis, together with expected future economic benefits, effectively compensated the Italian subsidiary for providing the guarantee, the Corte Suprema di Cassazione said in a May 7 ruling.

The case concerned NN Europe SpA (now TN ItalySpA), a subsidiary of Japanese group Tsubaki Nakashima Co., which ...