The discipline of transfer pricing is that concerns the correct determination of the price in transactions for the exchange of goods and services at an intragroup level, that is, when the commercial exchange takes place between a participating and investee company, or between several companies owned by the same holding, and in general between related companies.
In particular, the Transfer Pricing discipline is significant when the two companies, the transferor and the transferee, are located in different countries, being able to lend themselves to hidden transfers of profits between one country and another.
The objective of the discipline is to avoid cases of tax avoidance that can be realized, for example, through a sale of goods or services underestimating its revenues, giving rise to a transfer of the profits produced to taxable States privileged. Another case is given by buying at an extra cost in order to deduct costs from business income that are higher than the normal market value for similar goods or services in similar market circumstances.
Companies that carry out transactions within the framework of the transfer pricing discipline are not subject to sanctions if they have suitable documentation to allow the verification of compliance with the principle of free competition, of the conditions and transfer prices applied by multinational companies, or when they are able to document in advance the correctness of the prices applied within the group.
This suitable documentation consists of:
- a Masterfile, which collects information on the activities of the multinational group and the global distribution of income among the various companies;
- and a Country File which contains information relating to the resident company as well as the analysis of transfer prices relating to transactions involving the latter with related parties located in different jurisdictions.
Having said that, let us look at the main innovations brought by Provision n ° 360494 of 23.11.2020, issued by the Agenzia delle Entrate, which introduces substantial changes for what concerns, to the appropriate documentation, and the eligibility requirements of the same.
From a subjective point of view, the existent distinction between “holding company”, “sub-holding” and “controlled company” disappears. The effect is that now all subjects have to make the set of documents integrating the Masterfile and the Country File, while in the previous set, only the “holding” and “sub-holding” were required to equip themselves with the Masterfile, and for the “controlled” companies it was possible to prepare only the Country File. Still from a subjective point of view, the definition of SMEs “small and medium-sized enterprises”, which can access to the simplified documentation regime, has been modified. Now is considered a SME that company whose revenues or turnover do not exceed 50 million euros for the period to which it refers the documentation. The subjects that control or are controlled by a subject that cannot be qualified as a “small and medium-sized enterprise” are excluded from this category.
The simplified documentation contains the description of intra-group services, contracts or agreements stipulated for the provision of services, the valorization of operations which, for its determination, a simplified approach is used.
This approach consists in the aggregation of direct and indirect costs associated with the provision of the service (or services), adding a profit margin equal to 5% of the aforementioned costs.
With reference to the content of the Country File, in addition to the presence of a different detail of data and information, the request for specific documentation relating to “Financial information” is added, namely:
- the annual accounts of local businesses for the tax period in question, among which the request for information and reconciliation statements showing how the financial data used in applying the transfer pricing method can be reconciled with the financial statements or with other equivalent documentation ;
- and summaries of financial data relevant to comparable subjects used in the analysis and the sources from which these data were obtained.
About the Masterfile, additional information is requested. That includes:
- the illustration of the value chain, to facilitate the identification of the group’s profit generation factors;
- a focus on intangible assets and research and development activities in the group and its discipline;
- a focus on the financial activities of the group, with reference to the financing methods, to companies that perform centralized financing functions, etc.;
- and the list and summary of the preventive agreements (APA and cross-border preventive rulings on transfer prices) signed with tax administrations of the countries in which the group operates, with objective difficulties, not infrequently, regarding their accessibility also for confidentiality reasons imposed by the provisions of other states.
A particular focus is then placed on “low added value” services for which the preparation of appropriate documentation is required which consists of:
- A description of the services, indication of the beneficiaries and the reasons for their provision;
- A copy of the contracts;
- And an enhancement of operations with details of the aggregate of costs, of the profit margin.
Last but not least, the Provision provides that the set of documents must be signed by the legal representative or his/her delegate by means of an electronic signature with a time stamp, to be affixed by the date of submission of the tax return for the tax period of reference of the documentation itself.