An important news, that concern Italian subjects with related parties abroad, has been introduced with the Provision n. 360494 of 23/11/2020 and in particular has been introduced substantial modifications to the dispositions in matter of documentation of transfer pricing.
News transfer pricing 2020
Starting from the 2020 budget, taxpayers who wish to benefit from the non-application of penalties for unfaithful tax returns, will have to prepare its own documentation of transfer pricing according to the rules included in the new provisions.
Here are the most important news:
The most relevant points are listed below:
– Increasing the burden of documentation for stakeholders. With the new regulation, all resident companies’ belonging of multinational groups will have to prepare a National Documentation and a Masterfile (previously this obligation was reserved for holding and sub-holding only).
– Further information to be included in the documentation. The Measure changes the structure of the Masterfile and the National Documentation, complying with the OECD Transfer Pricing Guidelines of 2017. This implies the need to provide more information to be able to take advantage of the “protection” from tax penalties. For instance, the Masterfile requires more details about the intra-group financial activities, about intangible assets, and about research and development activities. In addition, all advance transfer pricing agreements and advance cross-border rulings signed with or issued by the financial administrations of the countries in which the group operates should be indicated. Finally, the consolidated group financial statements must be attached to the Masterfile. The presentation of the Masterfile in English was made available. Furthermore, the National Documentation (that refers to the States in which the controlled entities operate), must also be included. These are, in particular, the annual accounts of the local entity, accompanied by the auditors’ report and the financial statements reconciliation between the financial data used for the application of the transfer pricing method with the annual financial statements or with other equivalent documentation. It is also required to attach copies of existing unilateral and bilateral/multilateral advance transfer pricing agreements and cross-border advance rulings to which the national undertaking is not a party, but which are still linked to the intragroup operations described above.
– Introduction of a specific documentation for low value-added services, for which different evaluation criteria are applied in the Masterfile. In particular, it will be necessary to indicate the nature of the services, the scope of the beneficiaries, the benefits expected or obtained, the allocation criteria and the underlying rationale for such selection, as well as explaining and documenting the cost basis and calculations underlying the allocation.
New documental obligations: transfer pricing
– Possibility of limiting the scope of the operations to be indicated in the document costs. The Provision clarifies that the taxpayer has the right to present the National Documentation and the Masterfile only with regard to a part of the operations carried out. The reward scheme for the non-application of sanctions will apply exclusively to the operations described, for which the suitability of the information provided has been established.
– Clarification of the parameters to be considered for the assessment of the suitability of the documentation. It is now made clear that the documentation will be considered suitable when it provides the data and information necessary to carry out an analysis of the transfer conditions and prices applied, even if partial omissions or inaccuracies occur, which are not such as to jeopardize the control activity. Conversely, the documentation cannot be considered “ineligible” only because of the Administration’s disregard the type of method adopted by the taxpayer for the purpose of determining transfer pricing or transactions and/or comparable entities.
– Obligation of digital signature, with time stamp to be affixed before the date of submission of the tax return of the relevant tax year. Once digitally signed and time-marked, the documentation may therefore be modified only in the case of submission of a supplementary “unfavourable” declaration, submitted for errors or omissions concerning intragroup transfer prices, in the supplementary declaration itself.
– Extension of the deadline to 20 days to provide documentation following a request from the Financial Administration (first equal to 10 days). On the other hand, the additional period of only 7 days provided in case of need to integrate certain aspects of the documentation, on which instead it would have been appropriate to intervene extensively, remains unchanged. However, there is also the possibility of prolongation for more complex cases, where possible according to the needs of the verification.
To which companies does the legislation apply?
As stated in the introduction, the legislation applies: a) to companies that are part of a multinational group, that are resident in Italy and that have intra-group transactions with non-resident entities; b) to permanent establishments in Italy of non-resident entities; c) to companies that have their residency in Italy with foreign permanent establishments that have opted for the branch exemption for transactions between the parent company and the permanent establishment and between the latter and other group entities.
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