lunedì 13/02/2023 • 06:00
There is time until February 28th for companies with calendar year-end to prepare their transfer pricing documentation package in order to benefit from the penalty protection regime in case of transfer pricing adjustments.
With art. 26 of the Law Decree No. 78/2010 (converted into Law 122/2010), the Italian Government introduced transfer pricing regulations to benefit from the non-applicability of penalties pursuant to art. 1, paragraph 6, and art. 2, paragraph 4-ter, of Legislative Decree 471/97 (so-called “penalty protection regime”) in case of transfer pricing adjustments. On November 23, 2020, the Italian tax authorities issued operational instructions (“Provvedimento”) aimed at changing the set of documents required to benefit from the penalty protection regime aligning the Italian legislation to the international standards established by the OECD. On November 26, 2021, the Italian tax authorities issued guidance—Circular letter No. 15/E 2021 (26 November 2021)—to clarify the transfer pricing documentation requirements and implementation of the penalty protection regime. Based on the above, to benefit from the penalty protection regime in case of transfer pricing adjustments, Italian taxpayers (including Italian subsidiaries of foreign multinationals) would need to prepare a documentation set that includes a Masterfile, providing a blueprint of the whole multinational group, and a Local Country file with a focus on the Italian entity’s operations. Masterfile The Masterfile is a mandatory document required to Italian taxpayers that want to access the penalty protection regime (including subsidiaries for which, under the previous regime, no Masterfile was required). The content and structure of the Masterfile is focused on the identification of the key value-drivers of the group’s profitability, operating structure and value chain. Such document should contain detailed information on the group's intangible assets — i.e., list of the group's IPs, related intercompany agreements, significant transactions incurred between associated enterprises and their transfer pricing policies — and the intra-group financing activities, including information on the group's financing structure, identification of entities that provide group’s central financing functions and a description of the transfer pricing policies related to intra-group financial transactions. With respect to the financing arrangement, a clear and complete description of the funding from third parties is required, including type of contract, lender, beneficiary, date and duration of the contract, amount, currency, conditions, interest rate applied, as well as any guarantee given. A copy of the group consolidated financial statements together with a list of advance pricing agreements (APAs) and other tax rulings entered with the tax authorities of the countries in which the group operates should also be attached to the Masterfile. The Masterfile can be prepared by the ultimate parent company, with an overview of the whole group, or by a group’s division, provided it refers to the division in which the Italian entity operates. If the structure and/or the content of the Masterfile prepared by the ultimate parent entity is not aligned with the content provided by Chapter VI of the OECD Transfer pricing Guidelines, Italian taxpayers would need to prepare an appendix to reconcile the content of the Masterfile prepared centrally with the content required by the Italian law. In case the fiscal year of the parent company and the one of its Italian subsidiary do not match, Italian taxpayers may submit the Masterfile related to the fiscal year preceding the one for which the Italian entity is preparing its transfer pricing documentation. Local Country File In addition to the general information related to the Italian entity (history, evolution, reference market, operating structure) as well as detailed information on its intra-group transactions, the Country File should also include: Organizational chart: with indication of the number of employees assigned to each company function, as well as a description of the role played by the people in charge of local management functions and their reporting from a hierarchical and functional perspective; Royalty and interest expenses: they should reported using the accrual principle. Upon request of the tax authorities, taxpayers must provide the amount of payments under a cash principle; Reconciliation of financial data: the economic data of the Italian tested party (or foreign Tested party) used for the calculation of the profit level indicator should be reconciled with the financial statements of the tested party (even in case of foreign entity); Marginal transactions: taxpayers may decide not to analyze certain transactions that are considered to be marginal, i.e. which amount does not exceed 5% of the total in absolute value of the intercompany transactions indicated in the income tax return. Marginal transactions that are not fully analyzed would not benefit from the penalty protection regime, in case of transfer pricing adjustments; A copy of unilateral, bilateral, or multilateral APAs as well as cross-border rulings: provided that such agreements relate to transactions that are connected to the intercompany transactions described in the Local File, even though the resident entity is not part of it; Italian headquarter/PE dealings: a description of any internal dealings with their foreign PEs in a branch exemption regime. Small and Medium Enterprises (SME) An entity can be qualified as SME if its annual turnover does not exceed 50 million for the fiscal year covered by the Italian transfer pricing documentation and it does not control and/or it is not controlled by an entity qualified as SME (i.e. which turnover exceed 50 million). Such entities are not required to update the economic data regarding the intercompany transactions covered by the Country file during the following two fiscal years, provided that the comparability factors do not undergo significant changes in such years and the comparability analysis is based on publicly available sources. Law Value-Added Services A simplified approach is provided for low-value adding services, i.e. services with a supportive nature, that are not part of the main activity of the group, do not require the use of unique and valuable intangibles and do not contribute to the creation of those assets, do not involve the hiring or control of a significant risk on the part of the service provider nor do they generate for the occurrence of such risk. For those services, it is possible to adopt a simplified approach by determining a 5% mark-up on costs as an appropriate arm’s length remuneration of such services, provided that taxpayers include additional information in the Local File, such as: 1) a description of the intercompany services (with details on the beneficiaries involved, the reasons for which such services can be considered as low value adding, and allocation keys used to allocate costs; 2) related intercompany services agreements: 3) value of the operations, including calculations for direct and indirect costs of the services and 4) calculations demonstrating the cost allocation. Formal requirements and election for penalty protection The transfer pricing documentation should be prepared annually in Italian language, except for the Master File, which can be prepared also in English. Both the Masterfile and the Country file, together with their related annexes, must be signed by the legal representative of the Italian entity or a delegated person by means of a legally binding electronic signature and a time stamp (so-called marca temporale) no later than the due date of the relevant tax return. The communication to the Italian tax authorities that a transfer pricing documentation is in place can be made also by means of a late or amended income tax return filed within 90 days from the original income tax return due date, i.e. February 28th, 2023 for companies with calendar year end. Therefore, companies that would like to take advantage of the penalty protection regime in case of transfer pricing adjustments but were not able to prepare the 2021 documentation set by the due date of the 2021 income tax return (i.e. by November 30, 2022 for companies with calendar year-end), have time until next February 28th to prepare the documentation and communicate the possession of such documentation by filing an amended income tax return by the same date.
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Vedi anche
Le aziende con anno fiscale coincidente con l'anno solare hanno tempo fino al 28 febbraio per preparare il set documentale richiesto dalla normativa sui transfer princing
di
Giusy Bochicchio - Socio dello Studio Legale Tributario di EY
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