ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
8. Penalties and Documentation 8.1 Transfer Pricing Penalties and Defences Administrative Tax Penalties Italy has no specific transfer pricing penalties. How - ever, administrative tax penalties generally also apply in the case of transfer pricing claims. In particular, a transfer pricing claim may give rise to the application of the administrative penalties provided for by Legislative Decree 18 December 1997, No 471 (“Legislative Decree No 471/1997”): (i) for an incorrect corporate income tax return pursuant to Article 1 (2); or (ii) if the transfer pricing adjustment also triggers a failure to apply withholding taxes, for an incorrect withholding tax agent return pursuant to Article 2 (2), each of which is equal to 70% for violations com - mitted from 1 September 2024 (and ranges between 90% and 180% for violations committed before 1 September 2024) of the higher corporate taxes/higher withholding taxes assessed as a consequence of the upward adjustment (in case of withholding tax viola - tions, a further 20% penalty applies for the failure to apply withholding tax). Repeated violations can lead to special mechanisms for the calculation of penalties. Defences and exemptions With respect to administrative penalties, there are a number of potentially applicable exempting cases, in particular where the violation deriving from incorrect estimates gives rise to a differential not exceeding 5% of the declared amount (Article 6 (1) of Legisla - tive Decree No 472/1997). Such exempting cases are, however, seldom recognised by the IRA. Documentation requirements for penalty protection More specifically, Article 26 of Decree-Law, 31 May 2010, No 78, converted into law with amendments by Article 1 of Law 30 July 2010, No 122, introduced into the Italian legal system a penalty protection rule for taxpayers that comply with certain transfer pric - ing documentation requirements for their intra-group transactions subject to transfer pricing rules. Specifically, it is provided pursuant to Articles 1 (6) and 2 (4-ter) of Legislative Decree No 471/1997 that no penalties apply if the taxpayer delivers documentation
the event of the submission of several requests for bilateral or multilateral APAs with different states, the applicant shall pay the fee, as determined by the rules listed above, for each bilateral application or for each foreign country involved. No fees are required for unilateral APAs. 7.7 Duration of APA Cover The conclusion of a unilateral APA binds the parties for five years starting from the fiscal year in which it is signed, provided that no changes occur to the fac - tual or legal conditions which constitute the premise on which the clauses of the agreement are based. As for bilateral or multilateral APAs, these are binding according to the agreements reached with the for - eign tax authorities and starting from the fiscal year in which the application was submitted. The duration of bilateral or multilateral APAs is agreed by the compe - tent contracting authorities, and the tendency of the IRA is to propose a duration no longer than five years, aligned with the maturity of unilateral APAs. 7.8 Retroactive Effect for APAs Unilateral APAs can have retroactive effect (“rollback”) for one or more fiscal years preceding the effective - ness of the APA still open to tax assessment, if: (i) the factual and legal circumstances on which the APA is based also existed in previous fiscal years; and (ii) no tax audits (access, inspections and verifications) covering previous fiscal years to be covered by the APA have been started. As for the retroactive effect of bilateral and multilateral APAs, in addition to the above-mentioned conditions, it is also necessary to: (i) submit a request for ret - roactive effect in the APA application; and (ii) obtain the consent of the relevant foreign tax authority(ies) to extend the effects of the APA to the previous fiscal years still open to tax assessment. In both cases, if, from the retroactive effect of the APAs, upward adjustments are due, the taxpayer can spontaneously correct these using the ravvedimento operoso programme (as discussed in 5.1 Upward Transfer Pricing Adjustments ) and by the submis - sion of an amended tax return. No penalties apply to the higher taxes arising from the upward adjustment.
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