Italy clarifies key transfer pricing tenants
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Italy clarifies key transfer pricing tenants

italy-flag.jpg

Italy’s tax authority clarified a number of transfer pricing regulations at the nation’s annual tax conference, Telefisco. Salvatore Mattia and Federico Vincenti from Crowe Valente explore the key changes surrounding penalty protections and discrepancies in tax filings.

During Telefisco 2019, Italy’s annual tax conference, Italy’s tax authority clarified several transfer pricing (TP) tenants. Notably, the most important include:

a) Clarification regarding when penalty protection may be applied to TP documentation; and

b) The inapplicability of penalties for filing discrepant tax returns in the TP area.

Penalty protection

In accordance with Article 1, Paragraph 6, and Article 2, Paragraph 4 of Legislative Decree No. 471/1997, if a taxpayer provides the authorities with adequate documentation that shows TP policy was applied appropriately within intercompany transactions, penalties for administrative violations related to tax return discrepancies may not apply (i.e. “penalty protection”).

However, taxpayers who benefit from this exemption are required to provide all the necessary documentation to allow the tax authority to carry out a complete analysis on the TP policy applied on the intercompany transactions (“suitability” of TP documentation).

Any difference between the TP methods and the selection of comparable transactions/companies which have been chosen by the taxpayer within the TP documentation during the tax audit is not considered relevant in assessing the suitability of TP documentation.

Furthermore, compliance with the applicable regulation does not imply the suitability of such documentation.

Therefore, it is important that the documents provided by the taxpayer to the tax auditors facilitate in understanding the TP policy applied and its compliance with the arm’s-length principle.

Discrepancies in tax returns

Italian tax authorities have further clarified that tax returns filed with discrepancies in the TP area are not liable for penalty. However, in the case of TP adjustments, fraudulent declarations may be applied as a penalty instead.

In accordance with Article 4 of Legislative Decree No. 74/2000, which was amended by Legislative Decree No. 158/2015, a tax return discrepancy offence occurs when a taxpayer discloses an income that is smaller than the actual amount, or non-existent liabilities under the following joint circumstances:

  • The total evaded tax is higher than EUR 150,000 ($170,000); and

  • The total amount of non-disclosed income/profit, also through non-existent loss elements, is higher than 10% of the total amount filed in the tax return, or higher than EUR 3 million.

The novelty relies on the fact that the new provision replaces the expression “fictitious loss elements” with “non-existent loss elements”.

Consequently, as confirmed by Italy’s tax authority, TP adjustments may not be considered a tax offence in light of their estimated values.

Salvatore Mattia

Salvatore Mattia

 

Federico Vincenti

Federico Vincenti

This article was written by Salvatore Mattia and Federico Vincenti of Valente Associati GEB Partners/ Crowe Valente.

more across site & bottom lb ros

More from across our site

Despite the relief, Brazil’s government has also presented a bill which seeks to re-impose a tax burden on companies’ payroll, one local tax specialist told ITR
Jeremy Brown arrives at the firm after a near 16-year career with Deloitte
PwC could elect a woman into the senior leadership position for the first time; in other news, KPMG Australia has extended its CEO’s term
The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
Gift this article