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Legal Update

European Developments in Transfer Pricing

21 June 2010
Mayer Brown Legal Update

Italy Planning to Implement Transfer Pricing Documentation Provisions

Italy is following the path of other European countries and is introducing formal transfer pricing documentation requirements.

Although the content of the documentation is unknown yet, and shall be provided by implementing measures, the benefit of having and maintaining transfer pricing documentation is already clear: if a taxpayer provides transfer pricing documentation during a tax audit, no tax penalties (which now range from 100 to 200 percent of any additional taxes assessed) will be applied on tax adjustments made by the tax authorities. This measure will likely also be available for previous fiscal years that are still subject to audit.

The head of Italy’s Internal Revenue Agency (IRA) will issue regulations specifying the requirements that a taxpayer's transfer pricing documentation must meet in order for the taxpayer to be granted relief from the tax penalties; the regulations are expected to be issued by the end of July, although that schedule might be optimistic.

The same regulations will specify when and how the taxpayer should report the existence of such documentation.

It is anticipated that the regulations would follow the recommendations of the Joint Transfer Pricing Forum, as endorsed by the European Council.

This is an important development that should be closely monitored by any multinational with operations in Italy.

Spain Easing Documentation Requirements

After having introduced strict documentation requirements, Spain has proposed relaxing some of its provisions.

Two recent measures are noteworthy:

  • On 30 April 2010, derogations for documenting related-party transactions were introduced for companies whose (i) net sales in the current period did not exceed EUR 8,000,000 and (ii) related-party transactions did not exceed EUR 100,000 (Royal Legislative Decree 6/2010 of 30 April 2010 about measures for the boost of economic recovery and employment).
  • In addition, simplification of the statutory documentation requirements regarding related-party transactions also have been proposed. The Spanish government published on 3 June 2010 a draft bill aimed at excluding from documentation requirements (with some exceptions) all corporate income tax taxpayers (not only those whose net sales are less than EUR 8,000,000) in connection with transactions that were (i) carried out with the same related party and (ii) whose market value (taking into account the total transactions carried out with the same related party) would not exceed EUR 250,000.

These are not drastic changes, but they should help to lower the burden of documenting non-significant related-party transactions.

For more information about the matters raised in this Legal Update, please contact , European Transfer Pricing Centre (Brussels) at +32 2 551 5968.

Learn more about our Tax Controversy and Transfer Pricing practices.

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