Managing director as representative

Through the Commissioner’s decision no. 360494 dated 23 November 2020, the Italian Revenue Agency introduced new regulations concerning transfer pricing documentation for the penalty protection regime. Among the several changes introduced by this recent decision, we highlight the following:

  • It applies as of the fiscal year running at the date of release. Therefore, with regard to FY 2020 for those taxpayers with year-end closing on 31 December 2020.
  • It replaces the former Commissioner’s decision issued on 29 September 2010.
  • Entities (including both corporations and permanent establishments) that intend to benefit from the penalty protection regime will have to prepare both the masterfile and the local file: local file must be drafted in Italian, masterfile may be alternatively prepared in English.
  • Master and local files’ structure and content are now basically in line with the provisions set forth by the 2017 Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. Both documents have to be signed electronically by the legal representative and a time stamp has to be affixed within the deadline for the filing of the income tax return.
  • Communication of the possession of the transfer pricing documentation has to be made along with the presentation of the annual tax return (check the box).
  • The documentation has to be submitted electronically no later than 20 days upon formal request from the tax authorities.
  • Small and medium-sized enterprises (revenues not exceeding EUR50 million) may choose not to update the sections related to the intercompany transactions in the two fiscal years following the one to which the transfer pricing documentation relates. Please note that the definition of Small Medium Enterprises (SMEs) has been changed: entities directly or indirectly controlling or controlled (and this is the actual news) by an entity that does not qualify as “small and medium-sized enterprise” do not fall under this definition.
  • Specific documentation will have to be prepared for low-value-adding services, including the description of intercompany services, the criteria used to price them and the agreements supporting the services.

Initial remarks

In the light of the new provisions, it is expected that the Italian Revenue Agency will publish further clarifications in the forthcoming months. Nonetheless, it is already clear that Multinational Enterprises (MNEs) have to carefully plan the workflow in order to complete the transfer pricing documentation within the deadline for the submission of the tax return.

For more information, contact:

Gian Luca Nieddu (Partner – Transfer Pricing & Tax Value Chain)
T: +39 027780711

Lorenzo Piri (Transfer Pricing & Tax Value Chain Specialist)
T: +39 027780711

Date: December 2020