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Italy amends TP documentation requirements

On November 23, the Italian Revenue Agency issued new regulations on transfer pricing documentation, Act n. 360494, which introduces substantial and significant changes in the support of the application of the arm’s length principle and the Italian penalty-protection regime, and completely replaces Italy’s former transfer pricing regulations in Act no. 2010/137654.

Scope of the reform

The new regulations are aimed at aligning the domestic regulations with the OECD’s 2017 TP Guidelines in respect to the contents of the Master File, Local File and documentation on low-value-added services.

The new documentation requirements are applicable to intercompany transactions between Italian and foreign entities, profit attribution to Italian permanent establishments (PEs) of non-resident entities, foreign PEs of Italian entities which opted for “branch profit exemption” regime and eventually to the attribution of profits to non-exempted PEs of Italian companies (to calculate the double tax credit).

The new regulations allow the taxpayer to select the perimeter of intercompany transactions to be included in the Master File and Local File (a sort of “cherry picking” of covered transactions). The penalty-protection regime would be limited to the covered transactions chosen by the taxpayer.

Master File

In the new regulation, preparing the Master File is a requirement to access to the penalty-protection regime (previously, it was only required for resident entities or PEs qualifying as holding or sub-holding).

It is introduced the possibility to prepare several Master Files if the group operates several business lines with different transfer pricing policies.

In line with Chapter V of the OECD’s 2017 TP Guidelines,  the contents of the Master File would include the identification of key value drivers of the group’s profitability, operational structure and value chain. Now, detailed information is required on the group’s intangible assets (full list of group’s IPs, intercompany agreements, significant transactions and TP policies) and the financing activities (group’s financing structure, entities in charge of financing functions, TP policies). Group’s consolidated financial statements, a list of APA’s and other tax rulings must be attached in the Master File.

Local File

In addition to the previous contents, now the Local File must also include:

  • A description of the reporting lines of the human resources employed in each local organisational unit,
  • Business restructurings or transfers of assets (including intangibles),
  • An explanation of the reasons for performing a multi-year analysis or any comparability adjustment,
  • Indication of the main “critical assumptions” adopted in the application of the transfer pricing method and the impact of any changes thereto,
  • More financial information: annual financial statements, financial data used for the application of the TP method (e.g., segmented P&L) and financial information of the comparable companies,
  • Copy of any APA or tax ruling affecting the transfer prices of the Italian taxpayer.

Simplification for small and medium-sized entities

The new Italian transfer pricing regulations introduce changes that are somewhat significant for small or medium-sized entities. If a business qualifies as a small or medium-sized entity, it can update its transfer pricing benchmarking analysis every three years rather than annually.

Although the turnover conditions are unchanged (i.e. more than €50 million turnover in relevant FY), the new transfer pricing regulations stipulate that a company cannot qualify as a small or medium-sized entity if it either controls (directly or indirectly) or is controlled by a company that is not small or medium-sized.

It seems clear that this amendment will impact small and medium-sized Italian subsidiaries of multinational groups, disqualifying them from benefiting from the three-year period for updating transfer pricing benchmarking analysis.

Simplification for low-value-added services

The new regulations also introduces the “simplified approach” stated in new section D.3 of Chapter VII of the OECD TP Guidelines in connection with the low-value-added services.

This simplified regime for low-value-added services allows the taxpayer to avoid the benefit test and applying a 5% mark-up on the relevant direct and indirect costs, but requires preparing specific, additional documentation on these services, which includes:

  • A description of the intercompany services (detailing the beneficiaries, reasons to qualify as low-value-added, allocation keys),
  • Intercompany service agreements,
  • Supporting files for the computation of the charges (direct and indirect cost pooling, mark-up application, allocation key application).

Contemporaneous electronic signing

The most relevant change in the new regulations is the obligation to sign electronically both the Master File and the Local File by the legal representative (or his/her delegate), jointly with a timestamp.

In order to access to the penalty-protection regime, TP documentation signature should be made on or before the filing of the corporate income tax return.

Election for the penalty-protection regime

The election for the TP documentation regime must be made through the annual corporate income tax return.

In case of unfavourable amending tax return, the taxpayer can amend the TP documentation accordingly and re-sign it by the filing of the amending return.

Additionally, a transitional measure is provided for tax years up to 2019 (still open to audit), allowing to file amending tax returns and preparing TP documentation in accordance with the new regulations for those tax years by 31 December 2020, without the application of tax penalties and late payment interests.


Under the new regulations, TP documentation must be prepared annually and drafted in Italian language, except for the Master File, which can be prepared in English also.

Time to file the TP documentation

The deadline to file the TP documentation before the Italian tax authorities is extended from 10 to 20 days (since the day of the formal request) in the new regulations.

Entry into force

The TP documentation regulations are effective as from tax year 2020, affecting transfer pricing documentation prepared in 2021.


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