ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
establishments of non-Italian resident entities), wish - ing to benefit from the penalty protection regime, are obliged to prepare on a yearly basis both the master file and the local file. As to the master file, the 2020 TP DOC Regulation pro - vides that this file has to contain information regarding the group, in a structure and format that substantially mirrors BEPS Action 13 and the OECD Guidelines; taxpayers are allowed to draft more than one master file if the group carries out several activities that are different from each other and regulated by specific transfer pricing policies. Circular No 15/2021 clarified that taxpayers may also submit the master file pre - pared by the direct or indirect controlling entity, con - cerning the group as a whole or the individual division in which it operates, provided that such a document is (i) structured in the manner and (ii) contains the infor - mation required by Annex I to Chapter V of the OECD Guidelines. However, where such document has a dif - ferent structure or contains less information than can be inferred from the 2020 TP DOC Regulation, it must be supplemented by the taxpayer with a document linking the structure or with one or more appendices. With regard to the local file, the 2020 TP DOC Regula - tion provides that this file has to contain information regarding the local entity and its intra-group transac - tions, and must be drafted following a structure and format that substantially mirrors BEPS Action 13 and the OECD Guidelines. Circular No 15/2021 clarified that a taxpayer may submit transfer pricing documen - tation with respect to a part of the intercompany trans - actions carried out. A simplification is provided for small and medium-sized enterprises (taxpayers with an annual turnover not exceeding EUR50 million that are not, directly or indirectly, controlled by, or in control of, entities exceeding the mentioned annual turnover): they can opt to update the benchmark analysis of the local file every three years (instead of annually), pro - vided that (i) the comparability analysis has been per - formed using publicly available information sources; and (ii) the five comparability factors (characteristics of property or services, functions, assets and risks, contractual terms, economic circumstances, and business strategies) have not substantially changed.
Lastly, the 2020 TP DOC Regulation also sets out the content and the structure of the documentation to be followed by taxpayers for applying the simplified approach for intra-group, low value-adding services. It is worth mentioning that in case of doubts about the content that needs to be included in the master file and local file, Circular No 15/2021 clarifies that taxpayers may refer to the OECD Guidelines. In order to benefit from the penalty protection, both the master and local files must be: • prepared on a yearly basis, following the structure indicated in the 2020 TP DOC Regulation; • drafted in Italian (however, it is permissible to have the master file in English); • signed by the taxpayer’s legal representative or by a delegate using a digital signature with time stamp to be affixed within the date of submission of the tax return; and • submitted in an electronic format and delivered within 20 days of the Tax Auditors’ request. As stated above, the existence of the transfer pricing documentation must be communicated to the IRA in the corporate income tax return. Circular No 15/2021 clarifies that, in the event the tax - payer opts to submit the transfer pricing documenta - tion only for a part of the intercompany transactions carried out, the above penalty protection will apply only with respect to the transactions described. Country-by-Country Reporting With Law 28 December 2015, No 208 (Finance Act 2016), Italy introduced country-by-country reporting (CbCR) obligations in accordance with Action 13 of the OECD BEPS project. On 8 March 2017, the Decree of the Italian Ministry of Finance implementing the CbCR obligations (the “CbCR Decree”) was published. The law introduced a CbCR obligation for MNE groups to deliver a comprehensive report to the IRA reflecting their activities and taxes paid in each country where the group operates (eg, revenues, profits before tax and corporate income tax paid).
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