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New Guidelines for Transfer Pricing (TP) in Italy

Written by:
Paolo Comuzzi, Tax Department, Quorum – Studio Associato

On 23 November 2020, the Italian tax authority published new guidelines, or new instructions, for transfer pricing (TP) documentation that fully replace the previous guidelines of 2010. We point out that the new guidelines implement a Ministerial Decree of 14 May 2018 that established the rules for the practical application of the arm’s length principle.

The New Instructions introduce important and material changes to the mandatory contents of the TP documentation and the new instructions introduce the possibility to cover only certain intercompany transactions.

The New Instructions confirm that the set of TP documentation must include: (i) a Masterfile; and (ii) a Local country file, while introducing a new structure of the respective content. It is of utmost importance to stress that Masterfile will become a mandatory document for all Italian taxpayers that want to access the elective Italian TP penalty protection regime (including subsidiaries for which, under the previous regime, no Masterfile was required).

Both Masterfile and Country File must include mandatory information (assuming these documents are not prepared in accordance with the guidelines provided by the Italian tax authorities no penalty protection may be invoked by the Italian taxpayer).

The New Instructions also apply to Italian PEs of nonresident enterprises as well as to Italian enterprises with foreign PEs.

We deem useful to inform that Decree introduced the possibility to adopt a simplified approach for low value-added intercompany services by determining a 5% mark-up on costs as an appropriate arm’s-length value of such services.

The documentation set must be in Italian, while the Masterfile may be in English while both the Masterfile and the Local country file must be signed by the Italian entity’s legal representative or a delegated person by means of an electronic signature and a timestamp (so-called marca temporale) no later than the date of filing of the relevant tax return.