Thin capitalization rules not applicable to interest paid by Italian PE to US head office; deductibility of interest expense under transfer pricing rules analyzed

The Italian tax authority issued Ruling No. 44 on 30 March 2006 regarding the applicability of thin capitalization rules to the Italian permanent establishment (PE) of a non-resident company (the "US head office").

(a) Facts.The US head office is a US public company, Alfa & Company, which exercises its activities in Italy through a PE situated in Italy. The Italian PE paid interest on (i) loans obtained from the US head office and (ii) loans issued or gua…