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March 1, 2022

Italian Tax Authorities issue resolution on Mandatory Disclosure Rules

Executive summary

On 31 December 2021, the Italian Tax Authorities published Resolution No. 78/2021 (the Resolution) on the correct interpretation of transfer pricing (TP) adjustments between associated entities for the purposes of the Mandatory Disclosure Rules (MDR) under Legislative Decree No. 100, of 30 July 2020, which transposed the European Union (EU) Directive 2018/822 of the Council of the EU (DAC6) followed by the Decree of 17 November 2020.

The Resolution clarified that a TP policy implemented by a group of companies may satisfy the definition of a cross-border arrangement and, as such, may be subject to the MDR regulation. Furthermore, the Resolution has provided that TP adjustments, made in accordance with a TP policy, should be reported for DAC6 purposes where such an adjustment is made in favor of subsidiaries that are resident in jurisdictions having the characteristics indicated in the hallmarks C.1 bi) (no corporate income tax or at a rate equal to or close to zero) and C.1 bii) (non-cooperative jurisdictions), upon the occurrence of the additional conditions of reduction of taxes and the Main Benefit Test (MBT) (where relevant). Finally, as far as the timing of communication is concerned, the Resolution provided that the annual TP adjustments have to be reported for MDR purposes within 30 days from the date of approval of the financial statements of the parent company making the TP adjustment.

Detailed discussion


The Italian Tax Authorities received some requests for clarification on the existence or not of the obligation to report, under the MDR regulation, the year-end adjustments to transfer prices made in favor of nonresident subsidiaries (the so-called TP adjustment) for which hallmarks C.1 bi) and C.1 bii) could apply.

The Resolution describes the mechanism (i.e., the TP policy) under which at the end of each financial year, the operating result achieved by nonresident subsidiaries are verified and, in order to guarantee the group companies with a margin in line with arm’s-length values, in case the results are below a certain margin target, it is necessary to make appropriate adjustments to the prices of products sold during the year.

Considering the specific transaction under discussion, the Italian Tax Authorities were asked to clarify the application of the MDR rules to the TP adjustments.

Definition of cross-border arrangement

  • Resolution No. 78/2021 started with observations from the definition of the term “arrangement,” in order to assess whether a TP adjustment could potentially fall within the category of reportable arrangements.
  • In respect of the term “arrangement,” the Resolution made reference to the Ministerial Circular 2 of 2021, interpreting Article 2, paragraph 1, letter a) of Legislative Decree 100/2020 which clarified that the cross-border arrangement is "a scheme, agreement or project, concerning Italy and one or more foreign jurisdictions."
  • The terms "scheme," "agreement” and "project" refer to different degrees of complexity of the arrangement. In particular, the Ministerial Circular clarified that an arrangement that provides for a series of entities involved and relevant interconnected transactions could fall within the concept of "scheme." The "project," on the other hand, was defined as the set of theoretical hypotheses that make up a "scheme" which, if implemented, determine the achievement of one of the effects from which the obligation to report may derive. The "agreement" finally, was defined as any arrangement that includes a legally binding understanding.
  • By referring to the above, the Resolution commented on TP policies and their inclusion in the aforementioned definition. Specifically, it set out that that TP policies are generally formalized in agreements signed with the subsidiaries of foreign countries and, in any case, take on binding effect within the multinational groups. As such, based on the definition provided, the TP policies can be viewed as an “agreement,” and consequently TP adjustments, made in accordance with TP policies, are relevant from an MDR perspective.

Hallmarks and further conditions to be met for considering TP adjustments as reportable cross-border arrangements

  • Once defined the policy of transfer pricing as a cross-border arrangement, the Resolution proceeded with the logical steps to be checked to determine the reportability of an arrangement, based on the Italian MDR regulation.
  • The subsequent arguments concern, specifically, the hallmark’s applicability and the further conditions to be met, i.e., the MBT (where applicable) and pre-requisite of reduction of taxes for all of the hallmarks, except for D category.
  • Considering the arrangement’s features, the question proposed concerns the hallmarks included in C category. In this respect, the Resolution referred to the Ministerial Circular 2/2021 according to which for the notion of payment, the concept of tax-deductible item is relevant to determine its occurrence.
  • Based on the specific questions raised to the Italian Tax Authorities, the Resolution confirmed that the hallmarks which could be triggered by the arrangement under analysis are those for which the “payments” (in the sense above recalled) are made towards foreign entities for which, despite the recipient being resident for tax purposes in a jurisdiction, the latter does not impose any corporate income tax or impose a corporate income tax whose rate is equal to or close to zero (hallmark C.1 bi) or is included in a list of third country jurisdictions which have been assessed collectively by the Member States or in the framework of the OECD as non-cooperative (hallmark C.1 bii).
  • Once the TP adjustment is confirmed to be considered as a “deductible payment,” according to the hallmark C.1 definition, the subsequent steps concern the existence of the pre-requisite of potential tax reduction (article 6 of the Ministerial Decree 17 November 2020), and only for some of the mentioned Hallmarks, namely Hallmark C.1 bi), the occurrence of MBT (Article 7 of the Ministerial Decree 17 November 2020).
  • In this respect, the Resolution did not add any further interpretation or clarification in connection to the two steps which are required to be checked to consider the arrangement as reportable, but it only refers to the clarifications issued by the Ministerial Circular No. 2/2021.
  • Hallmarks category A, B, C and E are relevant only if they are liable to result in a reduction of taxes to which Directive 2011/16/EU applies payable by a taxpayer in a country of the EU or in other foreign jurisdictions with which a specific agreement for the exchange of information on DAC6 reportable arrangement exists.
  • In respect of the MBT, this test should be satisfied when the tax advantage connected to taxes relevant under DAC6 directive deriving from the implementation of the cross-border arrangement achievable by one or more taxpayers is greater than 50% of the sum of the aforesaid tax advantage and extra-fiscal advantages. Specifically, the tax advantage shall be calculated as the difference between the taxes to be paid based on the cross-border arrangement and the same taxes which would be due in the absence of such arrangement, while extra-fiscal advantages mean any quantifiable economic advantage of non-tax nature resulting from the cross-border arrangement.
  • Therefore, upon the occurrence of the additional conditions provided for by articles 6 and 7 of the Ministerial Decree 17 November 2020 (i.e., potential reduction of taxes and MBT), the TP adjustments have to be considered as reportable arrangements.

Timing for communication

The last point clarified by the Resolution No. 78/2021 concerned the timing according to which the TP adjustments, if they are reportable, have to be communicated.

The general rule provided for by Article 2 of the Ministerial Decree 17 November 2020 establishes that the taxpayer makes the communication within 30 days from the day following: (i) that in which the cross-border arrangement was made available for the implementation; or (ii) that in which implementation started. In this regard, the Italian legislation also specifies that the starting date to be considered for the implementation is the moment in which the taxpayer carries out the first act having legal effects.

Based on the above, a specific timeline has been confirmed for the scenario included in the Resolution. Namely, for reporting obligations subsequent to the first and related to the arrangement under discussion, the starting date from which 30 days is calculated is the date in which the Financial Statement of the parent company making the TP adjustment is approved.


For additional information with respect to this Alert, please contact the following:

Studio Legale e Tributario (Italy), Milan

Studio Legale e Tributario (Italy), Rome

Ernst & Young LLP (United Kingdom), Italian Tax Desk, London

Ernst & Young LLP (United States), Italian Tax Desk, New York


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