New Regulations on Transfer Pricing Documentation and Penalty Protection Regime in Italy

With provision no. 360494 dated November 23, 2020 (the “Provision”), the Italian Revenue Agency has profoundly changed the requirements to be met by multinational groups operating in Italy when preparing contemporaneous transfer pricing documentation to be eligible for the penalty protection regime.

The Provision replaces provision no. 2010/137654 dated September 29, 2010, and introduces several important changes, effective FY2020. The new regulations require taxpayers to disclose more detailed financial information compared to the past and also require additional coordination among group companies to report all the necessary information and analyses on time.

Furthermore, it is now possible for taxpayers to elect which intercompany transactions are to be documented, leaving the remaining transactions out of the documentation (and, therefore, not eligible for penalty protection).

Masterfile and Country File

In previous regulations, there was a distinction among holding companies, sub-holding companies and subsidiaries that also impacted the level of transfer pricing documentation required.  Following the Provision, all Italian companies that belong to multinational groups, regardless of corporate type, and all Italian permanent establishments have to prepare both a Masterfile and a local Italian Country file in order to qualify for penalty protection.

The Masterfile can also be prepared in English and the prescribed format is now (finally) in line with Chapter V of the OECD Transfer Pricing Guidelines of July 2017 (as revised by the Report on BEPS Action 13, Country-by-Country Reporting).

The reimagined Country File differs significantly from previous regulations, in particular requiring that the following be included:

  • Any intercompany agreements, advance pricing agreements and any other tax rulings entered into with tax authorities relating to the intercompany transactions
  • A description of the operational structure of the local entity, its organization chart, as well as the identification of each individual with management functions and their reporting lines, specifying the country in which they operate
  • Reconciliation statements of the financial data used in the application of the transfer pricing methods with the financial statements filed by the taxpayer



Under the previous regulations, to be eligible for penalty protection, the taxpayer could prepare the transfer pricing documentation, tick the dedicated box in its income tax return to declare the possession of the contemporaneous documentation, and (merely) present the documentation within 10 days from the tax authority’s request.

The Provision now prescribes that the Masterfile and the Country File have to be signed by the legal representative of the taxpayer (or by a delegate) through electronic signature, with proper “time stamp,” by the date of filing of the income tax return.

However, further clarifications are expected from the Italian Revenue Agency on the practical modalities and implications for penalty protection eligibility of the “timestamp,” for example, in the case of presenting supplementary tax declarations for amendments to prior-year tax returns.

Low Value-adding Services

Another element of interest is the attention given by the Provision to “low value-adding services,” which reflects a departure from the simplification goals espoused in the OECD Transfer Pricing Guidelines (Chapter VII).

According to the Provision, in order to apply the simplified approach involving the application of a 5% mark-up on costs without the need for benchmarking, it seems necessary to prepare a specific (and separate) documentation comprised of four different sections, and taxpayers are required to disclose granular financial information concerning the costs borne by the service provider for each type of services rendered.

Furthermore, while the taxpayer has to present a detailed set of materials carefully reviewing all the features of the services’ provision, it not clear whether this analysis has to be included in the Country File or in a separate document.

Small and Medium-sized Enterprises (SMEs) Simplification

The Provision restricts the scope of application of the simplifications previously granted to SMEs, restricting eligibility for SME treatment to only those companies with turnover of less than EUR 50 million (as before) and directly or indirectly controlled by companies having turnover of less than EUR 50 mn. Previously, the simplifications were available to all Italian companies with a turnover of less than 50 million Euro and not controlling any foreign company with turnover of EUR 50 mn or more, regardless of the size of their controlling counterparties, thus dramatically reducing the number of foreign-owned taxpayers eligible for the SME simplifications.


The Provision brings important and relevant changes to the Italian transfer pricing environment that is now more aligned to the OECD Transfer Pricing Guidelines. However, many of the changes require more clarity which we expect to be provided in the Italian Revenue Agency’s circular letters that are expected soon. Italian-based multinationals and  Italian subsidiaries of foreign-based multinationals must now carefully think through what is needed to prepare compliant Italian transfer pricing documentation considering the stringent timing requirements and the increase in the amount of financial information to be disclosed to be eligible for penalty protection.

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