Transfer Pricing is regulated by international and national regulations that require companies to document intra-group transactions to demonstrate compliance with the arm’s length principle. Proper documentation allows for the avoidance of penalties and the transparent management of transactions between associated companies.

Documentation obligations

Companies must prepare a series of documents to confirm the correct determination of transfer prices. The main ones are:

Masterfile A document that provides an overall view of the corporate group, describing the corporate structure, the activities carried out, the transfer pricing policies adopted, and the main intra-group agreements.

Country File A document specific to each group entity, detailing intra-group transactions, methods for determining prices, and comparability analyses with market transactions.

Comparability Analysis A report that compares the prices applied in intra-group transactions with those of similar transactions between independent companies, demonstrating compliance with the arm’s length principle.

Additional Documentation Includes contracts, financial statements, financial reports, and any other documents useful to support the determination of transfer prices.

Proper preparation of Transfer Pricing documentation is essential to ensure tax compliance and prevent disputes. In Italy, this requirement is regulated by the Revenue Agency’s Provision of November 23, 2020, which sets the guidelines for preparing the Masterfile and Country File, both of which are key to demonstrating the correctness of the transfer prices adopted.

These documents must contain detailed information about intra-group transactions, the methodologies used for price determination, and comparability analyses. Properly drafting them allows companies to avoid tax adjustments and benefit from the penalty protection regime, reducing the risk of penalties in case of audits.

Italian authorities require a transparent and structured approach to transfer price management, in line with the principles established by the OECD Guidelines and international standards on taxation. Respecting the arm’s length principle and adopting methodologies recognized globally are essential to avoid fiscal distortions and ensure proper profit allocation among countries.

Italian legislation, through the Revenue Agency’s Provision of November 23, 2020, imposes strict documentation and compliance requirements, reflecting the evolution of international best practices. This regulatory framework allows for more effective prevention of abuse and tax evasion, ensuring that companies operate within the rules and contribute fairly to the tax systems of the countries in which they operate.

DTA