Taxpayers that closed their fiscal year on December 31 2023 must submit their tax return by October 31 2024, indicating in it the availability (or the absence) of transfer pricing documentation.
Transfer pricing documentation in Italy is not mandatory, but it allows companies to benefit from the so-called penalty protection regime (starting from September 1 2024, penalties in the event of transfer pricing adjustments for intragroup transactions without the presence of transfer pricing documentation amount to 70% of the additional taxes assessed).
However, for companies that are unable to complete the transfer pricing documentation (with the digital signature of the legal representative and the application of the timestamp) by the October 31 deadline, it will be possible to benefit from a 90-day extension.
In that case, it will be possible to:
File the 2023 income tax return by October 31 2024, without indicating the possession of transfer pricing documentation;
Subsequently complete the transfer pricing documentation within the following 90 days;
Digitally sign the transfer pricing documentation with a timestamp; and
After signing, proceed with filing an amended tax return to indicate the availability of the transfer pricing documentation.
Therefore, it is possible to prepare the transfer pricing documentation by January 29 2025.
This extension could be particularly useful for Italian subsidiaries of foreign groups that require information and documentation from the parent company, but whose country of residence has deadlines for finalising the transfer pricing documentation that differ from the Italian deadline. For example, consider Italian subsidiaries that intend to use the group master file prepared at a central level but not yet available by October 31 2024.
An alternative means of notification regarding TP documentation
Italian Revenue Agency Circular No. 15/E of November 26 2021 also provides the possibility of notifying the availability of transfer pricing documentation by making use of the so-called remission in bonis procedure.
Through this procedure, the taxpayer could notify the possession of transfer pricing documentation by filing the income tax return within the deadline for submitting the subsequent year's tax return.
Therefore, for the 2023 tax year, the taxpayer would need to file an amended tax return by the deadline for the 2024 income tax return (that is, by September 30 2025).
However, this procedure is only possible if:
No tax audits have begun for the tax year in question; and
The transfer pricing documentation has been prepared and digitally signed with the application of a timestamp within 90 days of the original deadline (for the 2023 tax year, by January 29 2025).
Therefore, it is clear that the remission in bonis procedure is useful solely for the purpose of notifying the availability of transfer pricing documentation in order to benefit from the penalty protection regime.
However, as far as the preparation and signing of transfer pricing documentation are concerned, the deadline of January 29 2025 remains the latest possible date.
Penalty protection regime requirements
With reference to the content of the transfer pricing documentation, it should be noted that to benefit from the penalty protection regime, the documentation must be prepared following the structure outlined in a decision of the director of the Italian Revenue Agency dated November 23 2020.
Although a specific structure must be followed, the content of the documentation does not differ from the content required by the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
Therefore, the Italian taxpayer must prepare:
A master file, a document that contains information related to the multinational group and its overall transfer pricing policies; and
A local file (complementing the master file), which contains specific information related to the intragroup transactions that the local entity intends to document.
Moreover, in cases where there are transactions classified as ‘low value-adding services’ for which the taxpayer has opted for the application of the simplified approach (i.e., applying a 5% markup to the costs incurred for providing the service without a supporting economic analysis), the local file will also include the documentation required for the application of the simplified approach.
TP documentation requirements
Finally, it should be noted that preparing the transfer pricing documentation according to the structure required by the Italian Revenue Agency and complying with the formal requirements when filing the tax return does not automatically grant access to the penalty protection regime.
In fact, to benefit from the exemption from penalties, the transfer pricing documentation must be deemed adequate by the tax authorities.
The decision of the director of the Italian Revenue Agency dated November 23 2020 clarifies that the documentation cannot be considered adequate if, despite complying with the formal structure, it does not contain complete and accurate information as required by the same decision, or if the information provided is partially or entirely false.
On the other hand, the documentation must be considered adequate in all cases where it provides the tax authorities with the necessary data and knowledge to analyse the transfer pricing terms and conditions applied, with particular reference to the accurate delineation of transactions and the comparability analysis, including the functional analysis.
This holds true regardless of whether the transfer pricing method or the selection of transactions or comparable entities chosen by the taxpayer differs from that identified by the tax authorities.
