New Italian tax regs on country by country reporting

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Transfer Pricing
Italian regulations implementing OECD Country by Country Reporting
Gaetano Pizzitola
March 17, 2017

Hamburg / Brussels / Düsseldorf / London / Manchester / Milan / Munich / Paris /
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As other Countries, Italy implemented its own regs on CbC reporting for transfer pricing purposes
(Ministry of Finance Decree of February 23, 2017 published on the Official Gazette no. 56 of March 8,
2017)
The CbC Decree is consistent with:
∎ OECD BEPS Action 13
∎ EU Directive 2016/881/EU of May 25, 2016
∎ Multilateral Competent Authority Agreement of January 27, 2016
ITALIAN REGULATIONS ON CBC REPORTING

∎ Effective from FY 2016
∎ Failure of complying with CbC filing subject to penalty from € 10,000 to 50,000
∎ As long as the foreign parent company complies with CbC reporting on a mandatory or voluntary
basis, no CbC reporting is due by Italian subsidiaries and branches
∎ Italian Revenue may use CbC reports to identify areas for audit investigation or re-assess arm’s
length compliance of any executed advance prior agreement.
KEY PILLARS

PRIMARY VS SECONDARY REPORTING
Primary filing
Italian ultimate parent entity of a
multinational group
Secondary filing
Italian group entity of a foreign-
based multinational group
Mandatory CbC
reporting

Requirements for mandatory CbC reporting for an Italian ultimate parent entity
∎ Resident in Italy under Article 73 of the Income Tax Code
∎ Consolidated turnover of minimum € 750 million
∎ Subject to filing consolidated financial statements under Legislative Decree no. 127/1991 (Italian GAAP-Adopter) or
Legislative Decree no. 38/2005 (IAS-Adopter)
PRIMARY FILING – ITALIAN ULTIMATE PARENT ENTITY

Italian entities controlled by groups with foreign-based ultimate parent entity subject to CbC rules (€ 750
million revenues threshold) are exempt from CbC reporting in Italy if qualifying under any of following
exemptions
Ordinary exemption
∎ CbC report filed by ultimate parent entity in its home jurisdiction under binding rules
∎ Automatic exchange of CbC reports effective between Italy and the home jurisdiction of in the ultimate parent
entity
∎ No systemic failure of automatic exchange of CbC reports by the home jurisdiction of the ultimate parent entity
Surrogate filing exemption
∎ Foreign group entity appointed as its sole substitute by the ultimate parent entity and automatic exchange of CbC
reports effective between Italy and the home jurisdiction of the group surrogate filing entity
EU filing exemption
∎ Group entity elected in another EU jurisdiction designated by ultimate parent entity for EU-wide CbC filing
2016 voluntary filing exemption
∎ If no mandatory CbC reporting is effective for FY 2016 in the home jurisdiction of the ultimate parent entity but CbC
report is filed voluntarily by ultimate parent entity as long as mandatory CbC reporting and automatic exchange of
CbC reports is effective within December 31, 2017
SECONDARY FILING EXEMPTIONS

MANDATORY AND VOLUNTARY CBC REPORTS EXCHANGE WITH ITALY

Italian entities of foreign-based groups ordinarily subject to mandatory CbC reporting in Italy
∎ No mandatory CbC reporting in the home jurisdiction of the ultimate parent entity
∎ No automatic exchange of CbC reports between Italy and the home jurisdiction of the ultimate parent entity
∎ Systemic failure of mandatory exchange by the home jurisdiction of the ultimate parent entity
SECONDARY FILING – ITALIAN ENTITY CONTROLLED BY FOREIGN-BASED PARENT

CbC reports as per OECD template under Annex III to Chapter V BEPS Action 13
∎ Table 1 - Per Country data
 Revenues from unrelated and group companies
 Profits or losses before income taxes on cash and accrual bases
 Invested nominal capital
 Accumulated earnings
 Number of employees
 Value of tangible assets other than cash and its equivalents
∎ Table 2 - Per entity data
 Place of residence and incorporation
 Main business activity carried out
∎ Table 3 – Additional data
 Data on the multinational concerned
 Fiscal year
 Any further additional information deemed relevant by the multinational itself
CONTENTS OF CBC REPORT

All Italian entities of multinationals subject to CbC rules will fulfil Box RS 268 of FY 2016 income tax return
∎ Deadline October 2, 2017 for any calendar year entity (later if not)
∎ Disclosure of the following data as per Box RS 268 below (unofficial translation)
INCOME TAX RETURN COMPLIANCE – BOX RS 268

Mandatory CbC reporting deadline
∎ Within 12 months from closing of any fiscal year from 2016 onwards (e.g. December 31, 2017 for any calendar year
entity)
∎ E-filing protocol not yet available
Automatic exchange of CbC reports by Italian Revenue
∎ FY 2016 – within 6 months from filing deadline (e.g. June 30, 2018 for FY 2016 of any calendar year entity)
∎ FY 2017 onwards – within 3 months from filing deadline (e.g. March 31, 2018 for FY 2016 of any calendar year entity)
FILING AND AUTOMATIC EXCHANGE

Compliance failure penalty
∎ Omission of mandatory CbC reports and incorrect or incomplete filing by any obliged Italian entity is subject to
penalty ranging from € 10.000 up to € 50.000 as discretionarily levied by Italian Revenue under its policy and
regulations
Impact of CbC reports
∎ Investigations by Italian Revenue and potential transfer pricing adjustments
∎ Italian advance pricing agreements subject to re-assessment of their arm’s length compliance and potential forced
renegotiation
Confidentiality
∎ Italian Revenue subject to minimum standard of confidentiality based on OECD-EU Council Convention on Mutual
Administrative Assistance in tax matters of January 25, 1988
PENALTIES AND IMPACT

Minimum threshold € 750 million consolidated revenues per year
Effective date FY 2016
Ordinary exemption
Mandatory CbC filing in the home Country of the ultimate parent company
Automatic exchange of CbC reports between home Country and Italy
No notice of systemic compliance failure
EU exemption CbC filing by a designated group company in another EU jurisdiction
Surrogate filing exemption
If no ordinary CbC exemption is available, Italian entities may be exempted if a
group company is nominated by the ultimate parent as its own surrogate and
the exemption tests are met by the home Country of the surrogate entity
2016 exemption
Voluntary CbC report by ultimate parent company in its own home Country with
active automatic exchange of CbC reports with Italy
Compliance failure penalty € 10,000 up to 50,000
CBC REPORTING SUMMARY CHART

New Italian tax regs on country by country reporting

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New Italian tax regs on country by country reporting