CMS Expert Guide to Transfer Pricing Documentation in Italy

The Italian TP rules include: 

• require the taxpayer to prepare transfer pricing documentation for Country-by-country report purposes correspondent to Annex III of Chapter V of the OECD Transfer Pricing Guidelines (provided that the conditions provided therein are met);  
• do not require the taxpayer to prepare the Master File and Local File (TP Documentation) as an obligation;  
• allow the taxpayer to prepare the TP Documentation in order to benefit from the “penalty protection” regime; accordingly, no penalties apply in case of a transfer pricing assessment should the taxpayer (i) prepare proper TP Documentation, and (ii) inform the Italian Revenue Agency about said TP Documentation (to that end, a specific box must be filled in on the relevant tax return). 

In any case, the taxpayer should indicate the overall intercompany transactions’ volume in the tax return.

As a general principle, all transactions with associated enterprises should be documented.  

However, the taxpayer can:  

1. adopt a cherry-picking approach; accordingly, the transactions not selected nor described in the TP Documentation are excluded from the “penalty protection” regime; 
2. include only the transactions that have a marginal value (being those whose amount is higher than 5% of the overall intercompany transactions’ volume); accordingly, the transactions that have a marginal value and are not described in the TP Documentation are excluded from the “penalty protection regime”. 

Pursuant to the definition of “associated enterprises”, a company is associated to another if one of them: i) participates, directly or indirectly, in the management, control or capital of the other; or ii) participates, directly or indirectly, in the management, control or share capital of both companies. Both “legal control" (i.e. participation higher than 50% in the capital, voting rights of profits of the company) and “de facto control” (i.e. dominant influence in the management of the company, according to contractual or equity obligations) shall be considered.     

Transactions between a permanent establishment and its head office are included in the scope of the documentation requirement. 

Both taxpayers and tax authorities usually refer to EU TPD. However, in order to apply the above mentioned penalty protection regime there is a specific format required by the Italian Revenue Agency.

Yes, but in order to apply the above mentioned penalty protection regime there is a specific format required by the Italian Revenue Agency. 

Taxpayers who are not established in Italy do not need to provide specific information upon request. However, the Italian Revenue Agency may start an exchange of information procedure with the country where the taxpayer is established. 

Moreover, the taxpayer should be ready to provide certain information on other entities of the group that are not established in Italy to support the transfer prices that have been adopted. 

A case-by-case approach should be adopted; generally, regional benchmark studies are accepted.  

Taxpayers are never exempted from preparing benchmark studies if they want to benefit from the “penalty protection regime”. However:  

• benchmark studies may be avoided for low value adding services and transactions that have a marginal value; 
• benchmark studies’ financials may be updated every three years if the taxpayer qualifies as a small or medium-sized enterprise (assuming the benchmark study is based on information from publicly available resources and the business model as well as the economic conditions remain unchanged). Small and medium-sized enterprises are those with a turnover or revenue not exceeding EUR 50 million in the fiscal year, which the TP Documentation relates to. Entities that directly or indirectly control or are controlled by an entity that does not qualify as a small and medium-sized enterprise do not fall within this definition. 

Safe harbours were set for royalties in the 1980s by a circular letter of the Tax administration; the latter sometimes still refers to these safe-harbour rules, but these rules are no longer reliable. 

The TP Documentation must be drafted in Italian, expect for (i) the Masterfile, which may also be drafted in English, and (ii) the annexes to the Local File, which may also be drafted in a language other than Italian (a translation in Italian must be available upon request in case of audit).

The taxpayer who wants to benefit from the “penalty protection regime” must put a digital signature with a time stamp on the TP Documentation before the date of submission of the tax return for the relevant fiscal year, and the availability of the Documentation must be disclosed in the same tax return. Once digitally signed, the TP Documentation can be modified only in the case of submission of a supplementary tax return.  

The TP Documentation can then be requested by the Tax Administration in case of tax audit or by means of a simple questionnaire. Under these circumstances the taxpayer must respect the term of 20 days for providing the TP Documentation to the relevant tax office in order not to lose the penalty protection regime.  

Documentation-related penalties do not apply in Italy since the preparation of TP Documentation is not an obligation, but rather an option to benefit from the “penalty protection regime”.  

In case of TP upward adjustment, or absent or improperly prepared TP Documentation, penalty protection would not be granted and the applicable penalty would range from between 90% and 180% of the higher taxes due. 

In theory, the absence or incompleteness of documentation does not reverse the burden of proof. However, in practice, in order to face tax authorities’ challenges to the adopted transfer prices, the taxpayer should not only oppose their calculations point by point, but also provide its own reconstruction of the said prices. 

 Not applicable (documentation-related penalties are not provided for by Italian law). 

Not applicable. 

Yes, as from fiscal year 2016, Italy has introduced CbCR obligations.
The taxpayer must comply with the CbCR legislation in accordance with Annex III to Chapter V of the OECD Transfer Pricing Guidelines (provided that the conditions set out therein are met).

The obligation applies for fiscal years starting on 1 January 2016. The deadline for filing the CbCR is 12 months after the end of the relevant fiscal year. Furthermore, the taxpayer (i.e., the resident group company obliged to file the CbC report as identified under point 3. below) must notify – within the date of submission of the tax return for the relevant fiscal year – which is entity that will take care of CbC reporting for the MNE group.

The obligation to file a CbCR applies to Italian resident companies controlling an MNE group with a
consolidated annual revenue of at least EUR 750 million in the immediately preceding fiscal year, and which are not controlled by persons different from individuals. However, under certain circumstances, the obligation to file a CbCR may also regard certain controlled Italian resident companies of an MNE group different from the parent company.

Yes, the content of the Italian CbCR is fully in line with the OECD model, and the ITA uses the exact CbCR models as prepared by the OECD.

If the CbCR is not filed (or filed in delay), or the data and information are incomplete or incorrect, a penalty applies in a range between EUR 10,000 and EUR 50,000.

Yes, most of the tax treaties signed by Italy include provisions for the exchange of information with other jurisdictions.

Also, Italy has agreed to exchange CbC information with all EU Member States under the Directive
2016/881/UE of 25 May 2016. With regard to non-EU Member States, Italy signed the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (CbC MCAA) on 27 January 2016, as well as it has entered into bilateral agreements for the exchange of CbC information.

Not Applicable

TP Documentation shall be prepared for the purposes of the Investment Management Exemption.

Same content of the TP Documentation described above under § A.2.

Same content of the TP Documentation described above under § A.3.

The TP Documentation shall be prepared by investment managers (Italian and non-Italian tax resident, including that operating in Italy through a PE) that habitually (albeit with discretionary powers) in the name and/or on behalf of the foreign investment vehicle: 

• concludes contracts for the purchase, sale or negotiation of financial instruments and receivables on behalf of the foreign investment vehicles (or and directly or indirectly controlled entities); or
• actively participates in the execution of these transactions, including preliminary and ancillary activities provided that certain conditions are met.

Not applicable.

Not applicable.