ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
regime was introduced in 2010 whereby, should the Tax Auditors raise a transfer pricing claim, no penalties are levied if the taxpayer complies with specific documentation requirements and had timely filed a specific communication to the IRA within the corporate tax return on the availability of such documentation. The 2020 TP DOC Regulation, which repealed the 2010 regulation, requires transfer pricing documentation that consists of a master file and a local file. Therefore, Italian taxpayers (includ - ing permanent establishments of non-Italian resident entities), wishing to benefit from the penalty protection regime, are obliged to pre - pare on a yearly basis both the master file and the local file. As to the master file, the 2020 TP DOC Regula - tion provides that this file has to contain informa - tion regarding the group, following the structure set out in paragraph 2.2, which substantially mir - rors BEPS Action 13 and the OECD Guidelines; taxpayers are allowed to draft more than one master file if the group carries out several activi - ties that are different from each other and regu - lated by specific transfer pricing policies. Circu - lar No 15/2021 clarified that taxpayers may also submit the master file prepared by the direct or indirect controlling entity, concerning 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 information required by Annex I to Chapter V of the OECD Guidelines. However, where such document has a different structure or contains less information than that which can be inferred from the structure set out in paragraph 2.2, 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 Regulation provides that this file has to contain information regarding the local entity and its intra-group transactions, and must be drafted following the structure set out in paragraph 2.3, which substantially mirrors BEPS Action 13 and the OECD Guidelines. Circular No 15/2021 clari - fied that a taxpayer may submit transfer pric - ing documentation with respect to a part of the intercompany transactions carried out. A simpli - fication is provided for small and medium-sized enterprises (taxpayers with an annual turno - ver 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 bench - mark analysis of the local file every three years (instead of annually), provided that (i) the com - parability analysis has been performed 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 docu - mentation to be followed by the taxpayers for applying the simplified approach for intra-group low value-adding services. It is worth mentioning that Circular No 15/2021 clarified that taxpayers, in the case of doubts about the content that needs to be included in the master file and local file, may refer to the OECD Guidelines. In order to benefit from the penalty protection, both the master and local files must be:
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