New clarifications on Transfer Pricing – Assonime’s comments
Assonime, through Circular 20/2022, summarizes some interpretative solutions of the Agenzia delle Entrate (the Italian tax authority), regarding recent regulatory references currently in force, with particular focus to Agenzia delle Entrate Circulars Nos. 15/2021 and 16/2022. During the summary, Assonime also discusses the subject of Transfer Pricing, through the examination of topics such as the Arm's Length Range, the conditions for the penalty protection regime application, the retroactivity of bilateral and multilateral APAs, and the formal and substantive requirements of documentation.
Assonime, through Circular 20/2022, summarizes some interpretative solutions of the Agenzia delle Entrate (the Italian tax authority), regarding recent regulatory references currently in force, with particular focus to Agenzia delle Entrate Circulars Nos. 15/2021 and 16/2022.
The topics covered under Transfer Pricing
Retroactivity of unilateral, bilateral and multilateral Advance Pricing Agreement
On the subject of prior agreements on transfer pricing, it should be pointed out that retroactivity of the effectiveness of the unilateral agreements was already possible – at the request of the taxpayer – from the tax period in which the filing was made. With the publication of the Legge di Bilancio 2021, this possibility was extended to include tax periods still ascertainable as of the date the agreement was signed (“extended” retroactivity). Regarding:
- unilateral APAs, Assonime recalls that “extended” retroactivity is always applicable provided that no accesses, inspections or audits or other ascertainable activities of which the taxpayer has had formal knowledge have begun
- bilateral or multilateral agreements, in recalling the conditions for access, Assonime dwells on the condition that requires the taxpayer to make an explicit request in the application for prior agreement, creating two types of disparity: one with respect to unilateral prior agreements, and the other related to applications for bilateral or multilateral prior agreements submitted after January 01, 2021. Assonime stresses that if the authorities agree to consider extending the effectiveness of the agreement to include tax periods prior to the filing, this should be allowed by making a special request in the form of a supplement to said petition.
Penalty protection regime
With regard to the exemption from penalties pursuant to Articles 1, paragraph 6 and 2, paragraph 4-ter, of Decreto Legislativo 471/1997, Assonime recalls how adhering to the procedure above is a necessary but not sufficient condition to benefit from the regime in question; the latter is, in fact, subject to the positive judgment of suitability on the documentation formulated by the inspection bodies. The Agency, in Circular No. 15/2021 through instructions aimed at ensuring that the inspection activity is carried out within the scope of the necessary protections in favor of the taxpayer, positively intervenes in delimiting the scope of the judgment of suitability by the control bodies: the documentation meets the suitability requirement when it provides all the elements necessary for the verification of transfer prices.
- Signature of the documentation: regarding the signature of the documentation, the aforementioned Circular No. 15/2021 allows the digital signature and time stamp to be affixed within 90 days after the deadline for the transmission of the so-called “timely” tax return, thus within the deadline for the late, supplementary or substitute return.
- Possession of the documentation: regarding the communication of the possession of the documentation, Assonime recalls that it is possible to communicate the possession late by means of a supplementary declaration, subject to compliance with the following two conditions: that it is submitted within the deadline for the submission of the first useful declaration (i.e., the annual declaration referring to the following tax period) and that the electronic signature with time stamp is affixed on the transfer pricing documentation within 90 days following the deadline for the submission of the timely declaration.
- Accrual criterion: Assonime agrees with the clarifications that allow the National Documentation to be prepared following the accrual criterion for intercompany transactions (especially royalties and interest), with the provision of hypotheses of request by the control bodies for “supplementary” documentation, to request the amount of payments according to the cash criterion.
- Marginal transactions: Assonime is perplexed by the failure to extend the exemption from sanctions to such transactions when they were subject to adjustment, where the taxpayer legitimately made use of the option not to describe them; the Association suggests that the suitability of documentation should extend the benefit to such cases as well.
- Contestation of a charge pursuant to art.109 paragraph 5 of the TUIR: Assonime, regarding the non-application of the penalty exemption in the hypothesis of adjustments based on the alleged non-inherence of certain intercompany costs, hypothesizes that the passage of Circular No. 15/2021 refers to cases in which the negative component is non-existent in the previous declaration in whole or in part; therefore, these would be cases unrelated to a transfer pricing context. Moreover, Assonime recalls how the disallowance of a cost outside the discipline above would cause the impossibility of access to friendly procedures even in the European context, an eventuality to be averted with reference to the current regulatory context.
- Arm’s length range: finally, in relation to the positioning within the range of arm’s length values, Assonime in considering questionable the practice according to which the taxpayer’s positioning would be on the median, welcomes the clarification that all values within the range would be considered as arm’s length values, albeit under certain conditions.