In the meeting held with the specialised press on January 31, 2019, the Revenue Agency and the Financial Police (“Guardia di Finanza”) provided useful clarifications on several issues of international tax, including those concerning transfer pricing. Compared to the past, such clarifications confirm the increased tendency of tax authorities to reward taxpayers who prove to be “diligent” with the compliance requirements set by the local transfer pricing regulation.

In the meeting with the specialised press of January 31, 2019, in which both tax authorities took stock of different topics of internal tax, including the regime provided for foreign companies (CFC) and that one for dividends obtained from countries with a privileged taxation, an in-depth analysis was also dedicated to transfer pricing and in particular to those cases in which the local file prepared by the taxpayer (“Documentazione Nazionale”) is considered compliant for penalty protection purposes to the requirements set by relevant transfer pricing regulation.

In this regard, in accordance with Art. 8 of Ministerial Decree of May 14, 2018, Guardia di Finanza clarified how the penalty protection should be acknowledged, avoiding the penalties (which range from 90% to 180% of the higher taxes due), in all cases where the local file is a useful tool enabling tax authorities to carry out their inspection activities. Therefore, the assessment about the compliance of the local file is independent by potential divergences with tax authorities regarding the method or the comparables selected for the analysis.

To be relevant in order to qualify a local file how compliant is its aptitude, through the contents provided within, to be a valid and truthful source of information for the purposes of the control activity.

If the descriptions about the method applied and the selected criteria have to be clearly exposed by the taxpayers since the informative purposes of the report, different considerations are those about the acceptance or not of the conclusions contained in the same. Tax authorities can decide to accept the existing analysis, to apply some adjustments or also to carry out a new economic analysis. Those misalignments being expressions of a subjective position of one of the two parties should not influence the evaluation about the “compliant” nature of the local file for penalty protection purposes. That because they are the result of different evaluation positions, which being subjective for their same nature, should not affect the final assessment about the aptitude of the local file to be a valid source of information for the control activities of the tax authorities.

The position expressed by Guardia di Finanza goes towards the direction to relegate to the past those cases in which the non-application of the penalty protection took place, especially in the first years of application of the relevant law, for simple disagreements on the methodology or comparables selected by the taxpayer.

Matteo Coppola              
Transfer Pricing Manager - Milan