Transfer pricing documentation, the Revenue Agency provides clarifications on specific aspects relating to transfer pricing practiced by multinationals.

The information is provided in the circular number 15 of November 26, 2021.

The purpose of the practice document is the discipline of documentation to provide confirmation of the respect for the principle of competition.

This concerns in particular the conditions and multinational transfer pricing in transactions with associated companies.

The instructions contained in the circular replace what is indicated in previous practice papers.

Transfer pricing documentation: details from the tax administration

Circular No.15 of November 26, 2021 from the Revenue Agency provides details on specific aspects of the documentation relating to the transfert price.

Revenue Agency – Circular n ° 15 of November 26, 2021

Details about the documentation able to allow the verification of the respect of the principle of free competition of the applied transfer prices – (article 1, paragraph 6, and article 2, paragraph 4-ter, of the legislative decree of December 18, 1997, n. 471).

The purpose of the practical document is i transfer prices charged by multinationals in transactions with associated companies.

The recent circular follows on from the directive provision of 23 November 2020.

The Revenue Agency provides clarification on the documentation required to verify compliance with the principle of free competition.

In other words, it refers to the conditions and transfer prices practiced by multinationals in the transactions with associated companies, regulated by article 1, paragraph 6, and article 2, paragraph 4-ter, of Legislative Decree no. 471/1997.

The recent practice document replaces what is stated in previous practical documents on the documentary costs relating to transfer prices and refers to the contributions collected at the end of the public consultation which ended on 12 October last.

The circular refers to the reference regulatory framework, namely thearticle 110, paragraph 7 of the TUIR, which regulates the tax treatment of income items resulting from transactions with non-resident companies on the territory of the State.

The standard refers in particular to the following cases:

• non-resident companies in Italy which they directly or indirectly control the company;
• non-resident companies in Italy which are subsidiaries or are controlled by the same company who controls the business.

Since the theme of the transfert price is linked to the phenomenon of international double taxation, the OECD (Organization for Economic Co-operation and Development) provided the rules through specific guidelines.

The OECD guidance relate to transfer pricing for multinational companies and tax administrations and relate to the principle of free competition in transactions between associated companies residing in two or more different tax jurisdictions.

Transfer pricing documentation: communication to the Revenue Agency

The regulation provides for administrative penalties in the event of rectification of transfer price value.

More specifically, the cases in which:

• we perform higher tax;
• we perform credit difference;
• Check incorrect application of tariffs on the value of royalties and interest income that exceeds the free competition value provided for the exercise of withholding tax.

In such cases there is a administrative penalty in the amount of 90 to 180 percent the higher tax owed or the difference in credit used or the amount of unpaid withholding taxes.

This sanction should not be applied if, during the access, inspection, verification or any other preliminary activity, the taxpayer delivers the documentation specified by the Agency.

This indicated documentation is in fact suitable for verifying the respect for the value of free competition transfer prices charged.

The taxpayer in possession of the documentation must inform the Revenue Agency.

There is no obligation to prepare documentation but membership is encouraged, with a view to spontaneous development.

In fact, if the taxpayer does not send the documentation, he will receive the penalties provided for in cases of unfaithful tax return and the regional tax on productive activities and the unfaithful declaration of substitutes, provided for in articles 1 and 2, Legislative Decree no. 471/1997.

On the other hand, if he prepares and transmits the documentation in the manner and conditions provided by the management provision and after verification, he provides it to the control bodies, he will not incur penalties.

Transfer pricing documentation: purpose and structure of documents

The circular focuses on the purpose and structure of the documentation, with reference to the documents named Master file and to national documentation.

In addition, the practice document focuses on aspects related to the permanent establishment documents.

Specifically:

• the appropriate documentation for small and medium enterprises;
• the documentation required in the case of the choice of the simplified approach to enhance the value of an intra-group transaction which consists of the provision of low added value services.

The circular provides details on the profiles related to the forms, extent and conditions of the effectiveness of appropriate documentation.

The Masterfile and the national documentation must be signed by the taxpayer’s legal representative, or by its delegate, by means of an electronic signature with time stamp which must be affixed on the date of presentation of the tax return.

The circular illustrates the aspects relating to the communication of the possession of appropriate documentation.

Communication can also be done with the statement presented within ninety days from the ordinary submission deadline, whether it is late documentation, additional or replacing that already presented.

Possession of appropriate documentation may also be communicated late by means of a remittance.