Advance Pricing Agreements in Italy

2. Newsletter MUSE strategy

Legislation on advance pricing agreements or “APAs” is set forth by art. 31-ter of Presidential Decree no. 600/1973. Further regulations, particularly describing the procedure, have been provided by Central Revenue Commissioner’s decision no. 2016/42295 dated 21 March 2016

Content

APAs may relate to the following subjects:

a) definition of the methods for calculating the arm’s length value of intra-group transactions (i.e. transfer pricing)
pursuant to article 110, par. 7 of Presidential Decree no. 917/1986, and exit or entry taxes due in case of transfer
of residence for tax purposes, pursuant to articles 166 and 166-bis of the same law;

b) application to a specific case of rules, including those set forth by a double tax treaty (“DDT”), concerning the
attribution of profits and losses to an Italian company permanent establishment in another State or to the
permanent establishment in Italy of a non-resident person;

c) identification of those elements determining the existence of a permanent establishment in Italy;

d) application to a specific case of rules, including those set forth in a DDT, concerning the payment of dividends,
interest and royalties and other income to or from non-residents.

Admission

In order to be admitted to the procedure, multinational enterprises (“MNEs”) must file a dedicated application:

• as regards unilateral agreements, with the “Ufficio Accordi Preventivi presso la Divisione Contribuenti – Direzione
  Centrale Grandi Contribuenti – Settore Controllo, in Via Giorgione, 106 – 00147 Roma”;
• as regards bilateral and multilateral agreements, with the “Ufficio Risoluzione e Prevenzione controversie
  internazionali presso la Divisione Contribuenti – Direzione Centrale Grandi Contribuenti – Settore Controllo, in Via
  Giorgione, 106 – 00147 Roma”.

 

The application is drafted in plain paper and may be directly handed-in to the competent office, which issues a receipt, or
alternatively be sent:

• via registered mail;
• via certified e-mail to dc.acc.accordi@pec.agenziaentrate.it.

 

The Commissioner’s decision no. 2016/42295 dated 21 March 2016 provides detailed instructions regarding the content
of the application.

Copies of the application and related documentation are also produced in electronic format.

The Office, within 30 days from the application receipt (or from the completion of any further investigation deemed needed
for this purpose) and after having assessed that subjective and objective requirements are duly met, declares and notifies
the admission to the applicant.

Procedure

Once the investigation has been completed, the Office formally invites the company (which is usually represented by the legal representative or an attorney) to a meeting to verify the completeness of the information provided, formulate any request for further documentation and define the terms for carrying out the procedure.

The procedure can involve several meetings. During the procedure, the Office can access the premises of the applicant entity in order to collect additional useful elements and information. Minutes are drawn up for each of such activities, a copy of which is given to the applicant.

The procedure is concluded with the signature, by the person appointed by the company (i.e. legal representative or attorney) and the Office, of a formal agreement, detailing all relevant terms and conditions.

Subsequent checks

In order to verify the compliance with the terms of the signed agreement over the time and detect any change in factual
and legal conditions upon which the agreements had been grounded, the company is committed to:

a) prepare and make available to the Office, (periodically or upon specific request), documentation and other
information;

b) allow Central Revenue officers to access company premises and make the assessment under letter a. above.

In any case, during the agreement validity period, the Office may invite the company to provide clarifications and documentation useful to verify that the agreement has been fulfilled after its signature.
In addition, Commissioner’s decision no. 2016/42295 specifically disciplines those cases where total or partial violation of the agreement occurred as well as the circumstances leading to a need for an amendment to the agreement.

Agreement duration and renewal

The agreement becomes binding for both parties who have signed it and remains in force for the tax period during which it is stipulated and for the four subsequent tax periods. The taxpayer has the right to request the retroactivity of the agreement in the event specific circumstances occur (see paragraph 2 below).

The company intending to renew the terms of the agreement must file the renewal application with the competent Office at least 90 days before the expiration date, following the ordinary access procedure.

At least 15 days before the expiry of the agreement, the Office communicates the commencement of the procedure aimed at renewing the agreement or rejects the request with a motivated response. The renewal process ends with the signature of a dedicated agreement

3. New measures introduced by 2021 budget law

The 2021 budget law (law no. 178/2020) introduced important innovations to the APAs discipline. These changes have been included in the amended art. 31-ter of the Presidential Decree n. 600/1973 as summarized here below.  

Extended agreement retroactivity

The new rule, starting from 1 January 2021, widens the possibility for the taxpayer to retrospectively extend the effectiveness of the agreements, making it run from the tax periods before that in which the agreement has been signed, provided that the statute of limitation is not expired yet for those periods, which therefore are still potentially subject to tax assessment. This possibility is subject to specific conditions depending on whether unilateral or bilateral agreements are considered. In particular:

a. as regards unilateral agreements (i.e. new article 31-ter, paragraph 2 of Presidential Decree no. 600/1973), the
taxpayer may decide to backdate the effectiveness of the agreement to a previous tax period, still subject to
assessment, provided that in the tax period considered:

i. the same factual and legal circumstances underlying the agreement are verified;

ii. no tax assessment activities (i.e. accesses, inspections, verifications, sending of questionnaires or others) have
started yet.

In this case the taxpayer might be requested to adjust its tax position and file integrative tax returns, however without the application of administrative penalties.

Please consider that also prior legislation on APAs gave the taxpayer the option to extend backwards the effectiveness of a signed unilateral agreement, covering the tax periods preceding its stipulation (but not to tax periods before that ongoing at the application filing date and still provided that legal and factual circumstances underlying the agreement were verified
also in those prior fiscal years).

b. As regards bilateral or multilateral agreements (i.e. new art. 31-ter, paragraph 3 of D.P.R. no. 600/1973), in addition to the conditions mentioned with reference to unilateral agreements, the possibility of backdating the agreement effectiveness is subject to two additional requirements:

i. the taxpayer must have expressly requested that at the time of submitting the APA application;

ii. the competent authorities of the other foreign States involved must agree to extend the agreement effectiveness
to prior fiscal years.

Also in this case, the taxpayer might be requested to amend its tax position and file integrative tax returns, however without the application of administrative penalties.

Payment of an admission fee based on turnover

Paragraph 3-bis of the new article 31-ter states that when filing a bilateral or multilateral APA application, taxpayers are requested to pay a commission equal to:

i. Euro 10,000 Euros if the total turnover of the group to which the taxpayer belongs is less than Euro 100 million;
ii. Euro 30,000 if the above turnover is between Euro 100 and Euro 750 million;
iii. Euro 50,000, if the total turnover of the group to which the taxpayer belongs exceeds Euro 750 million

These fees are reduced by 50% in the event that the request relates to a mere renewal of an already existing agreement. Further indications are included in the Commissioner’s decision nr. 297428, published on 2nd November 2021.

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