ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
• the taxpayer has communicated to the IRA through the relevant corporate tax return that it has prepared transfer pricing documenta - tion; • 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 documentation is fully consistent with the underlying commercial reality; and • the documentation delivered in the course of an audit is complete and consistent with the provisions endorsed by the 2020 TP DOC Regulation (for further details see 8.2 Tax- payer Obligations Under the OECD Transfer Pricing Guidelines ). On this point, Article 8 of the Ministerial Decree reiterates that transfer pricing documentation will be appropriate to allow for penalty protection whenever that documentation provides auditors with the information necessary for an accurate analysis of the transfer prices, regardless of the choice of method or the selection of the tested party or comparables. This protection will apply, as clarified by 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 pricing adjustments may – under certain cir - cumstances – 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 imprison - ment, from two to four and a half years, of any- one who, with the aim of evading tax, files an incorrect tax return whereby both of the follow - ing 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 Legisla - tive Decree, 10 March 2000, No 74, no criminal relevance is given to: • undeclared income deriving from improper classification 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 Arti - cle 4(1-bis), it is often argued that transfer pricing adjustments should be considered not relevant for criminal purposes if at least one of the above- mentioned conditions is met (especially in the cases where the taxpayer prepared TP docu - mentation). 8.2 Transfer Pricing Documentation Italian laws follow the three-tiered approach rec - ommended by BEPS Action 13 and the OECD Guidelines (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
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