Transfer pricing is not a crime in itself. However, it can become the starting point for a significant tax audit, especially when the Tax Authority considers that an Italian company has applied, in its dealings with foreign group enterprises, prices different from those that independent entities would have agreed upon. The most delicate question is understanding when an adjustment remains purely fiscal and administrative and when, instead, it can open a criminal issue.
I will explain the boundary without confusing different concepts: prices not aligned with the arm's length principle, abuse of law, unfaithful tax returns, non-existent transactions, and intent to evade are not the same thing. We will see what conditions must concur for a transfer pricing challenge to have criminal relevance, which thresholds matter, and why group documents are useful only if they describe real transactions and criteria actually applied.
What transfer pricing regulates
Transfer pricing concerns relations between related enterprises located in different States. Consider the Italian company that purchases goods from its foreign parent company, receives intra-group services, pays royalties for a trademark, or finances an affiliate. In these cases, the price does not always stem from a negotiation between parties with conflicting interests; for this reason, tax law requires a comparison with the conditions that independent entities would have agreed upon in comparable circumstances.
Article 110, paragraph 7, of the TUIR establishes that income components deriving from transactions with non-resident companies belonging to the same control perimeter shall be determined according to arm's length conditions and prices, when this results in an increase in taxable income in Italy. The decrease in income follows instead the conditions provided by the discipline on corresponding adjustments. The current text can be consulted in the TUIR, Article 110.
An adjustment does not prove evasive conduct by itself. In practice, the discussion may concern the chosen method, the comparable sample, economic adjustments, risk allocation, or the value of services difficult to compare on the market. These are technical elements that can lead to a different quantification of taxable income, but they do not automatically transform a valuation disagreement into a crime.
Avoidance, abuse of law, and evasion: differences that cannot be superimposed
Abuse of law concerns formally lawful operations used without real economic substance to obtain undue tax advantages. Article 10-bis of the Taxpayer's Statute places acts, contracts, and contractual connections in this area which, while formally complying with the rules, produce no significant effects other than the essential tax advantage. The Tax Authority can disavow the advantage and redetermine the tax, but the rule excludes that the abuse of law constitutes, in itself, a criminally punishable fact under tax laws.
The discipline was introduced by Article 1 of Legislative Decree No. 128 of 2015. This fact is decisive: calling a choice "elusive" is not enough to speak of criminal evasion. It is necessary to distinguish the tax reconstruction of an undue advantage from the proof of a mendacious return presented with the purpose required by the criminal provision.
Criminal evasion requires additional elements. It may come into play when it is not merely a matter of choosing a contestable contractual arrangement, but of indicating data in the tax return that do not correspond to fiscal reality with the purpose of evading taxes. Even more different is the hypothesis in which operations, services, or documents are fictitious: here the problem is no longer just the value attributed to an intra-group relationship, but the very existence of the represented relationship.
The unfaithful tax return and the thresholds to be read together
The financial thresholds are necessary, but not sufficient. In 2026, Article 4 of Legislative Decree 74/2000 still applies. The new consolidated act under Legislative Decree 173/2024 has not yet replaced it: its application has been deferred to 1 January 2027, as stated in Article 102. Assessing an allegation also requires identifying the date of the conduct and the rules governing successive criminal laws, without confusing approval of legislation with its actual application.
For the unfaithful tax return, criminal relevance presupposes evaded tax exceeding 100,000 euros and, furthermore, that the active elements subtracted from taxation or the non-existent passive elements exceed 10 percent of the active elements indicated in the return or exceed, in any case, 2 million euros. The thresholds must therefore be considered jointly: it is not correct to stop at the greater assessed taxable income, nor to sum heterogeneous amounts without reconstructing the evaded tax according to the regulatory definition.
Valuations of real transactions are subject to specific rules. Article 4, paragraph 1-bis, excludes valuations of objectively existing items when the criteria actually applied are stated in the financial statements or other tax-relevant documentation. This rule can also cover transfer pricing, but is not an indiscriminate exemption. Outside that situation, paragraph 1-ter excludes valuations which, considered overall, differ from the correct values by less than 10 percent. A price adjustment therefore does not automatically establish a crime: the reality of the transactions, the disclosed criteria and all other elements of the offense must be checked.
This limitation concerns challenges based on price valuation. It does not protect facts other than real transfer pricing. If the assessment maintains that an invoice concerns a service never rendered, that a foreign company was inserted without performing any function, or that the documents represent non-existent relationships, the issue can shift toward other declarative offenses. In that case, invoking the label "transfer pricing" is not enough: it must be established whether there is a true dispute over value or a falsehood relating to transactions, documents, and declared data.
The intent to evade: why adjustment does not equal proof of crime
The unfaithful tax return requires the purpose of evading taxes. It is not enough to demonstrate that the Tax Authority proposes a different method or that the economic result of the Italian company would have been higher with other comparables. The subjective element required by the law must also emerge: the purpose of evading income taxes or VAT through the indication of active elements lower than actual ones or non-existent passive elements.
In transfer pricing, this profile requires separating facts with precision. A company may have adopted a recognizable method, applied criteria reported in contemporaneous documentation, and based the choice on debatable but real economic data. Alternatively, it may have constructed ex post a dossier inconsistent with contracts, financial flows, functions actually performed, and accounting records. Consistency between reality, contracts, and the tax return changes the meaning of the challenge.
Documentation is not a formula that eliminates all risk. It can be useful to explain the adopted method, the functions of group companies, the intangible assets employed, and the choice of comparables. However, it cannot make a non-existent service reliable or replace concrete proof of the activity performed. For this reason, it is essential to avoid a defense built solely on the name of the method, without verifying whether the described facts are actually demonstrable.
Documents and facts distinguishing a valuation problem from a more serious challenge
Contracts are not enough if operational behavior contradicts them. In an intra-group relationship, what counts, for example, is who makes commercial decisions, who owns or develops intangible assets, who assumes inventory risk, who has personnel suitable for providing services, and who truly bears the costs. If an affiliate invoices high remuneration, the concrete question is what activity it performed and by what means.
The most useful evidence is not necessarily complex: orders, periodic reports, correspondence, decision-making minutes, platform access data, cost schedules, results produced by personnel, evidence of benefits received, and payments consistent with agreements. Every document must link the price to an actual transaction. A file prepared after the challenge can help organize data, but it does not replace traces formed while the relationship was being executed.
If a inspection report, an invitation, or an assessment act has already arrived, it is advisable to immediately distinguish individual adjustments: some may concern exclusively the price, others deductibility, and still others the existence of the transaction. We can work with the fiscal and technical part to keep the levels separate and clarify which facts truly affect the possible criminal profile. The error to avoid is treating every finding as if it automatically had the same consequence.
Choices to consider before and after a challenge
Before the tax return, the useful choice is to build an applicable and verifiable policy. The transfer pricing method must be compatible with the type of transaction and with data that the enterprise can exhibit. An apparently sophisticated policy but distant from concrete management increases the risk of inconsistencies: the contract attributes a function to a company, while personnel, decisions, and costs show that the function is performed elsewhere.
When the operation is planned and presents non-ordinary aspects, preventive dialogue tools exist with the Tax Authority to define the method of calculating the value of intra-group operations. A preventive comparison does not coincide with internal documentation. Documentation describes and supports the adopted policy; a preventive agreement instead requires a specific procedure and produces effects within the limits of the agreement itself.
After a challenge, the first alternative is to understand whether the disagreement concerns a margin, a comparable, or a historical fact. If the knot is evaluative, the response must show why the chosen method reflects comparable conditions. If the knot is the non-existence of services or the falsity of documents, one must focus on proof of actual performance and the responsibility of the persons involved. Paying, settling, or discussing the tax claim are different decisions from the reconstruction of criminal liability. They must not be confused, because prerequisites, timing, and effects do not necessarily coincide.
Frequently asked questions
Does a transfer pricing adjustment always entail a tax crime?
No. An adjustment can determine higher taxes, interest, and administrative consequences without integrating a crime. For the unfaithful tax return, thresholds provided by law, the intent to evade, and conduct falling within the criminal provision are needed. For valuations of real transactions, the conditions and limits of the exclusions under Article 4, paragraphs 1-bis and 1-ter, must also be checked.
Can I invoke the abuse of law to avoid a criminal accusation?
Abuse of law is not a tax crime in itself. However, this rule does not allow qualifying as simple abuse a fact based on false invoices, non-existent services, or data not corresponding to reality. One must understand whether the Tax Authority contests a contractual construction devoid of substance or a distinct and concrete falsehood.
Are unfaithful tax return thresholds calculated on the greater assessed income?
No, the central parameter is the evaded tax. The greater taxable income does not automatically coincide with the evaded tax and must be linked to the single tax concerned. The tax threshold is then flanked by thresholds relating to subtracted active elements or non-existent passive elements, which require autonomous verification.
Does transfer pricing documentation exclude all criminal liability?
No. Serious documentation can demonstrate the adopted method and the coherence of the group policy, but it does not make an operation that was not executed true. Its effectiveness depends on correspondence with contracts, accounting, functions performed, financial flows, and available operational evidence.
What should I do if I receive a challenge mentioning transfer pricing?
It is necessary to immediately separate the findings. What concerns the value of prices must be distinguished from what challenges the existence of services, the veracity of documents, or the evasive purpose. This distinction guides both the fiscal response and the criminal evaluation. If the profile is concrete, you can contact me to examine the challenge with the necessary technical support.
Essential regulatory references
Article 110, paragraph 7, of the TUIR remains central to the arm’s length criterion. The distinction between abuse and crime is governed by Article 10-bis of the Taxpayer’s Statute. In 2026, the thresholds and exclusions for an inaccurate tax return are set out in Article 4 of Legislative Decree 74/2000.