Italy, November 23, 2020- The Revenue Agency amended the Italian legislation on transfer pricing documentation, with effect from the 2020 tax period

By January 18, 2021 No Comments

Italy, November 23, 2020- The Revenue Agency amended the Italian legislation on transfer pricing documentation, with effect from the 2020 tax period.


The new official instructions (“Provision No. 360494”) of the Revenue Agency has implemented the provisions set forth in the Law Decree issued on May 14, 2018 and entirely replaces the former Provision in force to date (Provision of September 29, 2010).

The aim of the new instructions is that of aligning the Italian Transfer pricing regulation to the OECD Guidelines publishes in July 2017.


In 2010, the Italian Government introduced a specific documentation requirements for MNE, setting the provision of compliant documentation relieves taxpayers from the normal regime of tax-geared penalties on adjustments insofar as the adjustment relates to a TP matter.

The regime is optional, but grants consistent advantages to the compliant taxpayers: in the event of tax audit,  the possession of the transfer pricing documentation (compliant with the requirements of set out by the Provision) exempts the taxpayer from the penalties on the adjustments raised by the tax auditors on the transfer prices. These penalties would be otherwise applied in the range of 90% -180% of the tax assessed and not paid.



The new instructions of 23 November 2020 have left the penalty protection regime unchanged but have made significant changes regarding the extension of documentary obligations and the structure of the transfer pricing documentation.


  1. The main changes


1.1 Extension of the taxpayer’s duties

The Revenue Agency introduced the extension of the obligation to prepare the Masterfile to all Group companies (not just holding and sub-holding): the Documentation required is composed of both a Master File and a Local File, to be prepared in Italian language. The new Provision allow the Italian company to provide the Master File in English.

The requirements above are valid for Permanent Establishments as well, where applicable.


  • Structure and contents


The Masterfile contains information on the multinational group activities and global allocation of income among different entities must be prepared.

The Local File focuses on the local entity, by providing detailed information on the company’s business strategy, the functional-risk-assets analysis (i.e. FAR analysis) and the financial results. A specific section is dedicated to the analysis of each intercompany transaction with and related parties located in different jurisdictions, by applying the transfer pricing method identified by the OECD Guidelines.


  • Electronic signature and time stamp

One of the more significant new regulations introduced by the new Provision is the paragraph 5.1.2 that states that both Masterfile and Country File  must be signed electronically by the Legal Representative (or a delegated substitute). The electronic signature gives certainty (through a “time stamp[1]”) to the signing date, which must be prior to the tax return filing date for the relevant fiscal year.

If the taxpayer does not comply with this requirement the Documentation cannot be eligible for penalty protection regime.

In case of a tax audit, the Documentation must be submitted within 20 days (10 days under the previous regulation) from the request of the tax auditors. Any additional information that may be requested during a tax audit has to be provided within 7 days.


  • Amendment of the Documentation and supplementary tax return

 As under the previous regime, in order to be eligible for the penalty protection regime, the taxpayer must communicate to the Tax Authority the possession of the Documentation upon filing of the relevant tax return. Furthermore, the taxpayer is allowed to amend the Documentation. In this case, a specific communication has to be submitted by filing an amended tax return. Further clarifications are expected from the Tax Authorities on this topic.


  • “Selection” of intercompany transactions

According to the new rules, the taxpayer is now entitled to report only specific intercompany transactions taking place during the fiscal year under analysis. In this case, the penalty protection is granted only for the documented transactions.


  • Low value-adding services

In order to apply the “simplified approach” as defined by the OECD Guidelines (5% mark-up application considered “arm’s length”), it is necessary to prepare specific documentation consisting of 4 sections:

  1. Description of the services provided, explaining the individual user companies and the criteria for dividing the total services rendered between them, motivating the inclusion in the low added value category.
  2. Indication of the benefits obtained (i.e. “the benefit test”) or expected and confirmation of the profit margin applied.
  3. Indication of the service agreements stipulated in writing with the subsidiaries and description of their content
  4. Illustration, also by means of spreadsheets, of the calculations made to divide the costs of low value added services among the various affiliates according to the criteria indicated in section 1.


  • Entry into force

The new provisions will apply starting from the ongoing fiscal year at the date of November 23, 2020. For companies that close their financial statements on 31 December (fiscal year coinciding with the calendar year), the first year of application of the new regulation is 2020.


LDP Tax & Law is at your disposal for any queries.

For more information, please contact


Monica Di Oronzo

Manging Partner


Via M. Buonarrotti, 39

20145 Milan

+39 02 480 065 14




Verbena Caravella

Transfer Pricing Specialist


Via M. Buonarrotti, 39

20145 Milan

+39 02 480 065 14

[1] The time stamp consists of a duty stamp to affix on the document. The duty stamp must be dated on the day of deadline for the delivery of the tax return (currently, established at November 30. The Government could eventually establish extensions of the deadline). This procedure is aimed at obliging the taxpayer to respect the delivery terms set out in the Provision.

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