Italy – New transfer pricing documentation rules effective FY 2020
On 23 November 2020, new transfer pricing rules (Italian Commissioner Decision no. 360494) were introduced to replace the September 2010 requirements. These new rules are effective from financial year 2020 and apply to all resident organisations and permanent establishments situated in Italy.
Alignment with extant OECD guidelines
The changes have been introduced to make existing transfer pricing documentation requirements more compliant with the 2017 OECD Transfer Pricing guidelines (“OECD Guidelines”). The OECD Guidelines recommend a three-tiered approach to transfer pricing documentation – i.e., preparation of a local file, a master file and a country-by-country report.
Under the new Italian documentation rules, the content of the master file and local file is largely in line with the guidance provided in the OECD Guidelines, though there are certain additional Italy-only requirements.
According to previous regulations, holding and sub-holding companies were to prepare master file and local file whereas controlled companies were to prepare a local file only. Based on the new rules, all companies are required to prepare master file and local file, regardless of their position in the overall corporate structure, in order to benefit from penalty protection under a tax audit. Penalties under tax audit might range from 90% to 180% of additional taxes.
Timing and validity requirements
- The documents should primarily be prepared in Italian language, though the master file could be prepared in English.
- Both the master file and local file must be filed electronically by the entity’s legal representative by the date of filing of the tax return and a time stamp (marca temporale) affixed.
- The documentation must be provided to the tax authorities within 20 days (increased from earlier deadline of 10 days) from the date of request.
- The documents should be refreshed annually. Exemption exists for SMEs, who are not required to update the economic data pertaining to the intercompany transactions in the local file in the following 2 years, provided no material changes occur in that time frame.
Fiscal year 2020
For a taxpayer whose fiscal year ends on 31 December 2020, the deadline would be 30 November 2021.