On Sept. 29, 2010 the Italian Tax Administration issued ruling n. 2010/137654 (for a copy of the ruling, click here) that implements the new provisions on transfer pricing documentation enacted by way of the law decree no. 78 of May 31, 2010 converted into law n. 122 of July 30, 2010. The Italian transfer pricing documentation is consistent with the EU Transfer Pricing Documentation Code of Conduct approved on June 26, 2006 and OECD Guidelines adopted in 1995 and subsequently updated. Multinational enterprises are required to file a notice with the tax administration confirming that they have prepared and are possession of the required transfer pricing documentation simultaneously with the filing of their annual tax return. Consequently, for 2010 tax year for calendar year taxpayer, the notice shall be filed with the tax return due in 2011. For previous taxable years, the notice must be filed within 90 days from the implementation of the rules (i.e., within December. 29, 2010), and in any event before any audit requests from the tax administration. The transfer pricing documentation provides protection from the statutory penalty that is applicable in case of transfer pricing adjustments (equal to minimum 100 percent and maximum 200 percent of additional tax due).
1) Documentation framework
Transfer pricing documentation includes a master file with standardized information relevant for the entire multinational enterprise, and country-specific documentation with information relevant for the local entity and specific country in which the multinational enterprise operates.
Different requirements apply to Italian resident holding companies, Italian resident intermediate holding companies, foreign-owned Italian subsidiaries and Italian permanent establishments of foreign enterprises. Notably, also Italian permanent establishments of foreign multinationals are required to keep transfer pricing documentation concerning their transactions with their foreign headquarter or foreign affiliates.
The master file must include the following:
- description of the group and its business operations;
- legal ownership and business operation structure;
- business and marketing strategies;
- description of controlled transactions and list of associated enterprises, cost sharing agreements or cost contributions arrangements;
- description of functions, assets and risks;
- list of intangibles;
- description of transfer pricing policies or selected method;
- list of advance pricing agreements and transfer pricing rulings.
The country-specific documents must include similar information pertaining to the local entity and relevant to the local jurisdiction.
The transfer pricing documentation must be updated each taxable year.
2) Deadlines.
A notice that the transfer pricing documentation for the taxable year 2010 is available must be filed with the annual tax return for 2010 due in 2011. A notice that the transfer pricing documentation for prior years has been prepared must be filed within 90 days from Sept. 29, 2010. In case of audit taxpayers must supply the transfer pricing documentation within ten days and any supplemental information within seven days from the relevant request from the tax administration.
3) Penalty Protection
By complying with transfer pricing documentation requirements acting in good faith, taxpayers are protected from penalties in case of transfer pricing adjustments, which may range from a minimum of 100 percent to a maximum of 200 percent of additional tax due
