Ten years after the introduction of the Italian Commissioner Decision (the “Decision”) on transfer pricing documentation, the Italian Revenue Agency published on 23 November 2020 a new Instruction (no. 360494, the “Instruction”) which materially changed the Decision. This contribution examines the new developments thus introduced.
Starting from fiscal year 2020, multinational groups, in order to benefit from the so-called penalty protection, must comply with the requirements of the Instruction that replaces the provisions introduced in 2010.
It should be noted that transfer pricing documentation is not a compulsory filing under Italian law. However, if it is available in time and consistent with the domestic requirements, the taxpayer is entitled to benefit from the penalty protection provided for by Articles 1(6) and 2(4ter) of Legislative Decree 471/1997. However, the tax authority may deny the penalty protection, despite the fact that the structure of the documentation complies with the applicable provisions, if alternatively: the contents are incomplete and do not comply with the Instruction, or the information provided does not correspond, in whole or in part, to the truth.
The Instruction makes the following main changes to the previous framework: 1) structure of appropriate documentation (Master File and Local File); 2) form and deadline; 3) documentation on low value added services.
Structure of appropriate documentation
The Instruction states that the set of TP documentation must include: (i) a Master File; and (ii) a Local File, whilst introducing a new structure of the respective content. The Master File will become a mandatory document for all Italian taxpayers that want to access the elective Italian TP penalty protection regime (including subsidiaries of foreign groups, for which, under the previous Decision, no Master File was required). Under the new provision, the compliant documentation has undergone substantial formatting changes, as well as seeing a significant increase in data and information in accordance with the annexes to Chapter V of the OECD Guidelines 2017. The Master File must contain information on the multinational group, including the nature of the global business activities, the general transfer pricing policies and the global allocation of income and economic activities, in order to enable tax administrations to assess the presence of a significant transfer pricing risk. The Local File provides more detailed information on specific intra-group transactions.
Form and deadlines
The documentation set must be in Italian, whilst the Master File may be in English. Both the Master File and the Local File must be signed by the taxpayer’s legal representative or by a delegate by electronic signature with time stamp to be made within the date of submission of the tax return for the relevant tax year. The new timestamp rule will have a relevant operative impact on the timeline for finalising the transfer pricing documentation.
The delivery of the documentation to the Financial Administration is due no later than 20 days from the request.
Documentation on low value added services
The Instruction includes new specific rules concerning the documentation relating to low value added services, which should contain information concerning the description of intra-group services, service supply contracts, the valuation of operations and the related calculations. Said information should be provided with a specific set of documentation separate from the Master File and Local File.
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