ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
inspections and verifications) covering previous fiscal years to be covered by the APA have been started. As for the retroactive effect of bilateral and multi - lateral APAs, in addition to the above-mentioned conditions, it is also necessary to (i) submit a request for retroactive effect in the APA applica - tion, 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 rav - vedimento operoso programme (as discussed in 5.1 Upward Transfer Pricing Adjustments ) and by the submission of an amended tax return. No penalties apply to the higher taxes arising from the upward adjustment. 8. Penalties and Documentation 8.1 Transfer Pricing Penalties and Defences Administrative Tax Penalties Italy has no specific transfer pricing penalties. However, 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 tax return pursuant to Article 1(2); or (ii) if the transfer pricing adjust - ment also triggers a failure to apply withhold - ing taxes, for an incorrect withholding tax agent return pursuant to Article 2(2), each of which is equal to 70% for violations committed from 1
September 2024 (and range between 90% and 180% for violations committed before 1 Septem - ber 2024) of the higher corporate taxes/higher withholding taxes assessed as a consequence of the upward adjustment. Repeated violations can lead to further increases in the 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 differen - tial not exceeding 5% of the declared amount (Article 6(1) of Legislative 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 com - ply with certain transfer pricing documentation requirements for their intra-group transactions subject to transfer pricing rules. Specifically, it is provided pursuant to Arti - cles 1(6) and 2(4-ter) of Legislative Decree No 471/1997 that no penalties apply if the taxpayer delivers documentation that is appropriate to allow control over the compliance of the pric - es charged with the arm’s length principle, as determined in the 2020 TP DOC Regulation and as clarified by the 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 follow - ing conditions are met:
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