New transfer pricing documentation legislation in Italy

17.12.2020

The Italian Revenue Agency on 23 November 2020 issued new transfer pricing documentation legislation which align the Italian requirements to the OECD transfer pricing guidelines. The new requirements introduce significant and substantial changes to the documentation that must be prepared in order to support the application of the arm’s length principle, and hence requirements for opting in the Italian penalty protection regime.

According to the new legislation, the appropriate documentation for all Italian taxpayers that want to access the penalty protection regime must include both the Master File and Local File. The transfer pricing documentation should be prepared in Italian language except for the Master File which can be prepared also in English. The new legislation introduces the possibility to select upon taxpayer choice the perimeter of intercompany transactions to be included in the documentation. In such a case, the penalty protection regime will be applicable to covered transactions only.

Specific documentation is required as a necessary condition for applying the simplified approach for low value-adding services. In this regard, a documentation, in addition to Master File and Local File should be prepared which includes e.g. description of services, the reasons why such services are considered as low value-adding, allocation keys used to allocate costs and related intercompany agreements. Such documentation arguably could also be included within the Local File for penalty protections purposes.

The new legislation confirms that the election for the transfer pricing documentation regime must be made through the annual tax return. As a new rule, the legislation provides that in case of subsequent filing of unfavorable supplementary tax return, the taxpayer has the possibility to modify the documentation by giving notice in such supplementary tax return. In addition, the new legislation introduces the possibility to file an unfavorable supplementary tax return and to prepare the documentation provided by the new legislation by December 31, 2020 for previous fiscal years up to 2019. However, conditions for applying such provision are unclear and hence additional clarification are needed, particularly considering the upcoming strict deadline.

Among the main changes concerning the electronic format of transfer pricing documentation, the electronic signature of the legal representative must be executed no later than the date of filing of the relevant tax return. This implies that the transfer pricing documentation has to be finalized by the due date of tax return. The deadline to provide the transfer pricing documentation upon tax authorities’ request extended from 10 days to 20 days. 

More information in PwC’s Tax Insights