December 2, 2021
ltaly issues guidance on transfer pricing documentation
On 26 November 2021, the Italian Tax Authorities issued a Circular Letter providing clarifications on the new instructions introduced in November 2020 regarding the content and validity of the elective transfer pricing (TP) documentation available to Italian resident enterprises and Italian permanent establishments (PEs) of foreign entities to provide administrative penalty protection in the case of a TP assessment (New Instructions).1
With the Circular Letter, the Italian Tax Authorities have provided clarifications to increase the level of certainty in the interpretation of the New Instructions.
This Alert summarizes the key topics addressed by the Circular Letter.
The general concepts clarified by the Circular Letter include:
Suitability of TP documentation for penalty protection: it is clarified that the penalty protection provided by the TP documentation must be tested against each single transaction and not as a whole. Therefore, the TP documentation might be unsuitable for one transaction but still protect another documented transaction.
Electronic signature and time stamp: it is confirmed that an electronic signature with time stamp is required for both the Master File and Local File and relevant attachments before the submission of the relevant Italian corporate income tax return. The Circular Letter clarifies that a late signature and/or time stamp is considered equivalent to the lack of signature/time stamp, with the consequence being the loss of the penalty protection regime.
Late or amending return: it is confirmed that in the event of a late return (i.e., filed within 90 days from the original deadline) or an amending return (i.e., filed within 90 days from the original deadline by replacing the previously filed one), penalty protection can be achieved provided that the Master File and the Local File are signed by an electronic signature with a time stamp prior to the date of the actual filing.
Late communication: if the TP documentation has been timely prepared (i.e., with the electronic signature and time stamp affixed not later than 90 days from the ordinary filing deadline) but the taxpayer has failed to make the required flag in the return, an amending return may be filed before the deadline for the submission of the following year tax return. As an example, the communication relating to the fiscal year 2020, to be made with the annual tax return 2021, may be made by submitting an amended annual tax return by the deadline for submitting the 2021 tax return at the latest.
In addition to a general set of information to be included in the Master File in compliance with the New Instructions, the Circular Letter clarifies that this document must also include information concerning:
Loan agreements: terms related to the main contracts stipulated with independent lenders including type of contract, lender, beneficiary, date of stipulation, duration, amount, currency, conditions, interest rate, any guarantees given
In addition to a general set of information to be included in the Local File in compliance with the New Instructions, the Circular Letter clarifies that this document must also include information concerning:
Operational structure: it is required to provide the organizational chart with an indication of the number of human resources assigned to each company function, as well as a description of the role played by the persons in charge of local management functions and their reports - both from a hierarchical and functional point of view
For additional information with respect to this Alert, please contact the following:
Studio Legale Tributario, Transfer Pricing, Milan
Studio Legale Tributario, Financial Services Transfer Pricing, Milan
Studio Legale Tributario, Bologna
Studio Legale Tributario, Rome
Ernst & Young LLP (United Kingdom), Italian Tax Desk, London
Ernst & Young LLP (United States), Italian Tax Desk, New York