ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
that is appropriate to allow control over the compliance of the prices charged with the arm’s length principle, as determined in the 2020 TP DOC Regulation and as clarified by Circular Letter No 15 of 26 November 2021 (“Circular No 15/2021”). This is a replacement of the previous 2010 regulations that is substantially aligned with BEPS Action 13. In particular, penalties do not apply if the following conditions are met: • the taxpayer has communicated to the IRA through the relevant corporate income tax return that it has prepared transfer pricing documentation; • the taxpayer delivers, within 20 days from the Tax Auditors’ request, transfer pricing documentation drafted in accordance with the template structure set out by the 2020 TP DOC Regulation; • the information reported in the delivered documen - tation is fully consistent with the underlying com - mercial reality; and • the documentation delivered in the course of an audit is complete and consistent with the provi - sions endorsed by the 2020 TP DOC Regulation (for further details see 8.2 Transfer Pricing Docu- mentation ). On this point, Article 8 of the Ministerial Decree reiter - ates that transfer pricing documentation will be appro - priate to allow for penalty protection whenever that documentation provides auditors with the information necessary for an accurate analysis of the transfer pric - es, regardless of the choice of method or the selection of the tested party or comparables. This protection should apply, based on Circular No 15/2021, even if the transfer pricing documentation contains omis - sions or partial inaccuracies, provided that these do not hamper the IRA’s tax audit. Criminal Tax Penalties Furthermore, in addition to the above-mentioned administrative tax penalties, upward transfer pric - ing adjustments may – under certain circumstances – compel tax officers to refer the assessment to the public prosecutors to explore possible criminal tax law implications if certain thresholds are exceeded. In particular, Article 4 of Legislative Decree, 10 March 2000, No 74 provides for the imprisonment, from two to four-and-a-half years, of anyone who, with the aim
of evading tax, files an incorrect tax return whereby both of the following thresholds are exceeded: (i) the non-paid tax exceeds EUR100,000; and (ii) the upward adjustments exceed 10% of the positive ele - ments indicated in the tax return or EUR2 million. Defences and exemptions However, under Article 4 (1-bis) of the Legislative Decree, 10 March 2000, No 74, no criminal relevance is given to: • undeclared income deriving from improper classifi - cation or evaluation of positive or negative items of income that are real and properly disclosed in the accounts or in other documentation relevant for tax purposes; • wrong timing accrual; • non-deductibility of real costs; or • issues not related to the business activity of the taxpayer. Therefore, based on the above-mentioned Article 4 (1-bis), it is often argued that transfer pricing adjust - ments should not be considered relevant for criminal purposes if at least one of the above-mentioned con - ditions is met (especially in cases where the taxpayer prepared TP documentation). 8.2 Transfer Pricing Documentation Italian laws follow the three-tiered approach recom - mended by BEPS Action 13 and the OECD Guide - lines (ie, master file, local file and country-by-country reporting). Master File and Local File As mentioned in 8.1 Transfer Pricing Penalties and Defences , a specific penalty protection regime was introduced in 2010 whereby, should the Tax Auditors raise a transfer pricing claim, no penalties are levied if the taxpayer has complied with specific documenta - tion requirements and has timely filed a specific com - munication to the IRA within the corporate tax return on the availability of such documentation. The 2020 TP DOC Regulation, which replaced the 2010 regulation, requires transfer pricing documen - tation that consists of a master file and a local file. Therefore, Italian taxpayers (including permanent
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