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In brief

With provision no. 360494 of 23 November 2020 (Provision), the Italian Revenue Agency revises the structure and content of the transfer pricing documentation requirements for taxpayers who intend to benefit from the penalty protection regime (i.e., non-application of penalties for unfaithful tax return pursuant to article 1, paragraph 6, and article 2, paragraph 4-ter, of legislative decree 18 December 1997).

The new provisions replace the provisions of the director of the Italian Revenue Agency (2010/137654) of 29 September 2010 and are a clear sign of the alignment with the OECD standard.

The new rules will be effective from the current year (i.e., fiscal year 2020) and apply to: (i) companies resident in Italy that are part of a multinational group and that have conducted inter-company transactions with non-resident related parties; (ii) permanent establishments in Italy of non-resident companies; and (iii) resident companies in Italy with permanent establishments abroad that have opted for the so-called branch exemption regime (for transactions between the head office and the permanent establishment and between the latter and other group entities).

Among the various changes introduced by the Provision, we highlight the following:

Eligibility of TP documentation for penalty protection purposes and increased documentation requirements.

The Provision introduces changes to the compliance requirements as follows:

  • Firstly, ‘suitable/eligible’ documentation is now intended as the set composed by the Local File (Documentazione Nazionale) and the Master File. Accordingly, unlike in the past, the Provision does not distinguish between holding/sub-holding and subsidiary, but instead it is now also required of subsidiaries (of foreign headquartered multinationals) resident in Italy to provide not only the Local File but also the Master File.
  • Secondly, the Provision now requires the documentation to be signed by the legal representative by digital signature with electronic time stamp to be affixed by the date of presentation of the tax return. Further details on this are provided below.
  • Finally, the Provision reaffirms that the documentation must be considered suitable in all cases in which it provides the tax authorities with the data and information necessary to carry out an analysis of the conditions and transfer prices applied; regardless of whether the transfer pricing method applied or transactions selected as comparable by the taxpayer are different from those identified by the tax authorities (even if any existing omissions or inaccuracies do not compromise the control and analysis of the tax authorities in the context of the audit).
  • The new Provision specifies that any negative opinion in relation to the eligibility (i.e., idoneità) of the TP documentation formulated by the tax inspectors must be specifically motivated.1

Electronic signature with time stamp to be affixed by the date of presentation of the tax return

According to the Provision, certainty on the date of the readiness of TP documentation shall now be proved through the digital signature of the legal representative, with an electronic time-stamp affixed by the date of presentation of the tax return. Once digitally signed and temporally marked, the documentation can be modified only through the submission of a supplementary tax return amending any incorrect or missing information regarding the intercompany transfer prices. See point i) below.

Revised structure and content of Local File and Master File.

The Provision revises the structure and content of Master File and the Local File towards alignment with the OECD Transfer Pricing Guidelines of 2017. The new Provision delineates a revised documentary set that is more articulated and detailed if compared to the content and structure previously required for penalty protection, as follows:

  • If compared with previous requirements, the Master File now entails the provision of further details mainly in connection with: (i) the economically relevant activities that contribute to the generation of value within the group; (ii) the production and/or distribution chain of the main products/services; (iii) the strategy for the research, development, ownership and exploitation of intangible assets; (iv) the contribution of the individual entities of the group to the creation of value; (v) the group’s financing methods, with indication of the main financing agreements with independent lenders; (vi) the entities of the group that perform centralized treasury functions; (vii) advance pricing  agreements  (APAs)  and  cross-border  advanced  rulings  signed  with  the  tax administration of the countries where the group operates;2 and (viii) the consolidated financials of the group.
  • With reference to the Local File, the requirements are also more burdensome for the taxpayer. In addition to the information already required in connection with the local entity and inter-company transactions conducted, the new Provision now makes it compulsory to include: (i) an indication of the individuals to whom the local management functions must report, specifying the country in which the main offices of said individuals are located; (ii) the main competitors and a description of the activities they carry out; (iii) details on the so-called critical assumptions adopted in the application of the selected method (also indicating the effects resulting from their modification); (iv) audited financial statements of the local entity, reconciliation of the financial statements with the financial data used in the transfer pricing analysis and financial information of the comparable companies; as well as (v) a copy of the existing unilateral and bilateral/multilateral APAs and cross-border rulings (even if not participating in the ruling or agreement, but if related to the relevant intercompany transactions).

Specific documentation requirements for low value-adding inter-company services.

Also in alignment with Chapter VII of the OECD Transfer Pricing Guidelines of 2017, in case of the involvement of an Italian entity in any inter-company transaction connected to low value-adding services, the Provision introduces a further element of novelty by requiring the preparation of appropriate documentation to justify the application of the simplified approach.
In particular, documentation must contain specific information relating to: (i) the nature of the services; (ii) the entities benefitting from the services; (iii) the expected or effective benefits received; (iv) the allocation criteria; (v) the main terms of the services; and (vi) the necessary calculations for determining the consideration, including specific details on the cost base and the profit margin applied.

Language of the TP documentation.

The new Provision confirms that the documents must be drafted in Italian, with the exception of the Master File which can be prepared in English.

Small and medium-sized enterprises (PMI) eligible for providing simplified documentation

The Provision now supplements the definition of small and medium-sized enterprises (PMI, according to the acronym in Italian), indicating that entities qualifying as PMI should be those reporting a turnover not exceeding a EUR 50 million threshold, that do not directly or indirectly control “or are controlled” by a subject that cannot be qualified as a PMI.

As such, this significantly reduces the perimeter of companies that could qualify as PMI and therefore benefit from the simplified approach through which certain chapters of the Local File relating to intercompany transactions could be exempted from updates in the two tax periods following the one to which the Local File refers.3

TP documentation delivery terms. Extension of the terms of submittal.

The Provision extends the deadline for the submission of the TP documentation from 10 to 20 days upon request from the tax authorities. No changes are provided to the deadline for the provision of additional information (i.e., documentazione integrativa), for which current provisions set a seven day (or a wider period depending on the complexity of the request) deadline from request.

Possibility of bounding the perimeter of the operations to be documented.

The Provision grants taxpayers the right to prepare the Local File and the Master File with respect to ‘some’ selected intercompany transactions conducted. The above is provided that the penalty protection shall be granted just in connection with the transactions complying with the documentation requirements. As such, it is now clear that not including each and all of the intercompany transactions conducted shall not constitute itself an element for challenging the eligibility of the TP documentation for penalty protection purposes.

Communication of the availability of the TP documentation

In line with the current regulatory provisions, the communication of the possession of the transfer pricing documentation must be made along with the presentation of the annual tax return. The Provision now provides that, if filing a supplementary declaration (dichiarazione integrativa) “against the taxpayer” to correct and amend errors or omissions concerning to transfer prices, the taxpayer could modify or supplement the TP documentation.

Amendments to tax return by 31 December 2020 without penalties

Furthermore, in the case of the presentation of a supplementary tax return by 31 December 2020 with exclusive regard to the tax periods up to 2019 (and still subject to tax assessment), no penalties or interest on arrears are imposed if the taxpayer has complied with the indications contained in documents of the tax administration or if its behavior is carried out as a result of facts directly resulting from delays, omissions or errors of the tax administration itself (in protection of the good faith principle, i.e., tutela dell’affidamento e della buona fede).

Conclusive remark

From all of the above, it is observed that the Provision in general terms increases the amount and the extent of compulsory documentation requirements and allows for greater “transparency” in alignment with the OECD standard, which will now provide the Italian Revenue Agency with a broader and more structured set of information.4


[1]    In any case, the competent authority remains with the critical judgment and decision to grant the penalty protection regime.

[2]    Including a list indicating the scope and the duration of all the APAs.

[3]    Provided that the comparability analysis is based on information publicly available that did not experience significant changes in the said tax periods.

[4]    The information contained in this newsletter cannot be considered a legal advice.


Francesco Pisciotta serves as managing partner of the Firm’ s Italy offices and co-heads the tax practice of Baker McKenzie Italy. Francesco is a member of Baker McKenzie’s Europe and Global Tax Practice Group. He has been a member of the International Tax Commission of the Milan Association of Certified Accountants. Mr. Pisciotta is a certified auditor and a member of the Milan Tax Bar. He is regularly invited to speak on tax issues in various seminars and conferences.


Michele Santocchini co-heads the tax practice of Baker McKenzie Italy. He joined Baker McKenzie's Rome office as counsel in 2013. A certified public accountant, he is knowledgeable in international tax planning, including supply chain restructuring, cross-border reorganization and acquisitions, financial restructuring and transfer pricing. Mr. Santocchini also has vast experience in M&A matters, such as acquisition structuring, merger reorganizations and leveraged buyout. He has made several presentations on tax matters in events organized by the Rome CPA’s Association, and also lectures on advanced tax law at the University La Sapienza of Rome.


Maria Fernanda Trujillo is a member of the Latin America Transfer Pricing Group. With over seven years of experience, she focuses her practice on transfer pricing matters, comprising compliance, planning, transfer pricing audits, business restructuring and advance pricing agreement (APA) procedures. With considerable experience in transfer pricing consulting, her knowledge involves projects in jurisdictions over several countries across the Latin America region. Ms. Trujillo is also seasoned in the pharmaceutical industry, and has comprehensive experience in advising companies in the food, auto parts and textile industries, as well as from the insurance and securities sector, full service banks, investment funds, among others.