Although the preparation of transfer pricing documentation is not compulsory in Italy, it allows companies to benefit from so-called penalty protection in the case of transfer pricing adjustments in intra-group transactions (fines are usually the sum of the higher taxable amount). It corresponds to 90%)).
According to the regulations introduced from the 2020 tax period, the documents must be completed by the filing deadline of the income tax return and the return must be notified that the documents are available. Additionally, transfer pricing documents must be timestamped and digitally signed by a company’s legal representative.
Until the 2022 tax period, Italian taxpayers had to file their income tax returns within 11 months of the end of the financial year. Therefore, for the financial year ending December 31, 2022, income tax returns were required to be filed by November 30, 2023. As a result, transfer pricing documentation also needed to be completed by that date.
From 2024, the deadline for filing income tax returns will change from 11 months to 9 months, based on the 2023 tax period. Therefore, for the financial year ending December 31, 2023, income tax returns must be filed by September 30, 2024. Therefore, transfer pricing documentation must also be completed by that date.
Possibility to communicate the availability of transfer pricing documentation together with the amended income tax return after the usual deadlines have been confirmed.
In particular, communications made through an amended income tax return filed within 90 days of the regular deadline are valid. The signature and time stamp must be placed on the transfer pricing document by the filing date of the amended income tax return.
Once the 90 days have passed, remission allows you to provide notice within the deadline for filing your first valid amended income tax return.
Requirements for applying the fine protection system
It is important to reiterate that certain conditions must be met in order to benefit from the penalty protection scheme. Specifically, penalties will not apply if the following criteria are met:
-
The taxpayer has notified the tax authorities of the preparation of transfer pricing documents through the relevant income tax return.
-
The taxpayer shall, within 20 days of the tax auditor’s request, submit a transfer drafted according to the structured template outlined in Regulation No. 360494 of 2020 of the Italian Revenue Authority (also known as the 2020 TP DOC Regulation). Submit pricing documents.and
-
The information contained in the documents provided accurately reflects the underlying commercial reality.
Transfer pricing documentation is subject to penalty protection as long as it provides tax auditors with the information necessary for a thorough analysis of transfer pricing applicable to intercompany transactions.
The penalty protection regime also applies if the comparable companies selected by transfer pricing laws or by the Italian tax authorities during a tax audit change.
As explained in Circular No. 15/2021, such protection applies even if there are omissions or partial inaccuracies in the documents, as long as they do not impede a tax audit by the tax authorities.
From 2020, all companies (including permanent establishments in Italy) wishing to benefit from fine protection must create a master file and a local file. Previous regulations provided for a variety of documents to be prepared depending on the type of company.
The contents of the master file and local files should be fully consistent with the guidance set out in Annex 1 and 2 of Chapter 5 of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
These documents must be in Italian. However, it is also possible to present the master file in English, taking into account that this document is already mandatory in some countries and must be prepared according to OECD standards.
The only simplification provided by the Italian regulations relates to small and medium-sized enterprises (with a revenue not exceeding 50 million euros), which can update the comparability analysis every three years. Such simplification is possible if the comparability analysis is based on information obtained from publicly available sources and the so-called five comparable factors have not changed significantly during their tax period. It is only allowed in
It is also possible to create documents for only selected intercompany transactions. Therefore, taxpayers can decide which transactions to analyze, taking into account their importance and degree of risk. In such cases, penalty protection is only guaranteed for transactions covered by transfer pricing documentation.
Final thoughts on Italy’s new TP regulations
Italy’s new regulations do not result in any changes to the form or content of transfer pricing documentation, only the deadline for final determination has changed.
This change should be carefully considered by Italian taxpayers, especially if they have to wait for the completion of transfer pricing documentation in a foreign country (for example, if the deadline in the country where the parent company is located for preparing the master file is different). It should be evaluated. In such cases, various Italian taxpayers should consider choosing to notify within 90 days after the normal deadline.