The documentation regime was introduced by article 26 of Legislative Decree No. 78 of May 31, 2010, which became law on July 30. The law set forth a 60-day deadline for the Revenue Agency to issue the regulations necessary to make the new law's provisions effective; the 60-day period began to run on July 31, and has now been met.
The newly issued regulations establish the type and content of documentation on intercompany transactions that enterprises that are resident in Italy for tax purposes must make available to the tax authorities to benefit from the penalty protection regime introduced by the decree. Taxpayers may avoid the application of administrative penalties (which range between 100 and 200 percent of the additional taxes assessed) in the case of transfer pricing adjustments, provided that proper documentation has been prepared and promptly handed over to the tax auditors.
As expected, the regulations refer to the OECD transfer pricing guidelines and the documentation requirements broadly replicate the recommendations of the EU code of conduct on transfer pricing documentation for associated enterprises in the EU (including the "masterfile" and "country file" concepts), although with some adjustments toward a more comprehensive informative package.
The regulations classify businesses according to their situation in relation to the multinational group they belong to and require different sets of documentation for each category:
- Italian holdings and subholdings must have both a masterfile and the relevant domestic documentation;
- Italian subsidiaries of foreign multinational enterprises must maintain only domestic documentation; and
- permanent establishments of foreign enterprises must maintain either the masterfile and the domestic documentation or the domestic documentation only, depending on the foreign enterprise's qualification either as a holding or subholding or as a simple subsidiary.
The documentation must be detailed and include additional information to that indicated in the code of conduct. For instance, the documentation package must include the economic and legal reasons behind the intercompany transactions scheme adopted by the group, a precise mapping of any intercompany transactions not pertaining to the taxpayer's ordinary business, and a description of any advance pricing agreements concluded with other EU countries' tax authorities. Further, taxpayers must pay attention to illustrate any (significant) change in the functions, risks, and assets with reference to the previous fiscal year and the reasons, if applicable, for not using the traditional transactional methods.
The documentation also must:
- be in Italian, with one exception: masterfiles prepared abroad for foreign holdings if they are also applicable to an Italian subholding, provided the masterfile includes or is integrated with all the information required by the regulations;
- cover all intercompany transactions undertaken by the enterprise, including those not relevant to the taxpayer's ordinary business activity;
- be updated annually, except for small and medium-size enterprises (enterprises with an annual turnover of less than €50 million), which are free to update the economic analyses included in the documentation every three years if no significant modifications have been made; and
- be signed by the taxpayer's legal representative and made available to the tax authorities in electronic format, within 10 days of a request.
The documentation will not be considered suitable to support the arm's-length nature of intercompany transactions and will therefore not provide penalty protection to the taxpayer that has prepared it if, jointly or severally:
- the information provided is not complete and compliant with the regulations, regardless of whether the documentation meets the formal requirements set forth in the regulations; or
- the information provided in the documentation is only partially true or completely untrue.
Minor deficiencies or inaccuracies that do not jeopardize the auditors' work nor affect the accuracy of the results of that work will not prevent the penalty protection regime from being granted.
To benefit from the penalty protection offered by the law, taxpayers, in addition to preparing the above documentation, must file electronically an annual "communication" to the Revenue Agency along with their income tax return stating the availability of documentation relevant to the intercompany transactions carried out in the year for which the communication is filed, starting from the fiscal year in course on May 31, 2010.
For previous fiscal years, the deadline for submission of the communication is December 28. However, it is important to note that communications sent after the deadline may also grant access to the penalty protection regime if the communication is transmitted before the start of any audit activity.
Fuente. Tax Analysts