Prepared by Carlo Romano, Giorgio Massa and Daniele Conti
By means of 2021 Budget Law (more precisely, Article 1, paragraph 1101, of law no. 178 of 30 December 2020), a number of significant innovations address the field of advance pricing agreements (APAs), both unilateral (i.e. entered into by, and binding, only the resident company and the Italian tax authority) and bilateral and multilateral (i.e. also signed by, and binding, the tax administrations of the countries of tax residence of the foreign affiliates).
Reshaping the so-called roll-back
The Italian legislator, by opting for a roll-back (in the strict sense of the expression) already provided for in the legislation of other countries, has considerably expanded the possibility of extending the effects of an advance agreement to past years, increasing the appeal of such procedures as an instrument for the prevention of disputes on certain cases of international taxation (transfer pricing, distribution of dividends, interest and royalties, existence and attribution of profits and losses to the permanent establishment, entry and exit taxation).
Under the previous rules, the roll-back (in the broadest meaning) was applicable to unilateral advance agreements, allowing the taxpayer – once the agreement was signed – to consider it retrospectively covering tax periods prior to that of signature but not earlier than the tax period in which the request for the procedure was filed.
On the contrary, as a result of the legislative amendment, starting from 1 January 2021, the effects of the unilateral advance agreements can be extended to all preceding tax periods and for which the tax assessment is not yet time-barred, provided that: (i) there are the same factual and legal circumstances as those grounding the agreement; and that (ii) no access, inspections, tax audits, or other tax assessment activities of which the taxpayer has been formally notified, have begun. This is a faculty recognized to the taxpayer and which is exercised through self-correction of tax payments or by amending tax returns, without however applying the related administrative penalties.
There are no express rules for coordination or conversion relating to currently pending procedures, which, in itself, could lead to evaluations of convenience given that – as mentioned – the previous regulations were limited to a (broadly speaking) roll-back often triggering uncertainty on all the tax periods that could be still assessed and for which no tax inspection or investigation was ongoing. In fact, the risk of discrimination between the requests governed by the new law and the ones already pending calls for a desirable clarification aimed at streamlining the tax periods subject to the pending procedures with the amendments at hand.
Furthermore, the same proper roll-back above described, as from 1 January 2021, is also applicable to the effects of bilateral and multilateral advance agreements. It is therefore recognized – in line with the rules of a number of foreign administrations – the possibility of retrospective effects for those agreements so as to cover previous tax periods, as well as unilateral agreements. However, compared to the latter, and in consideration of the need for coordination with the foreign authority to be involved in the agreement, further conditions are envisaged, namely that (i) the taxpayer has expressly requested the roll-back when seeking for opening the procedure, and that (ii) the other involved tax administrations agree to such roll-back effect. The need for an express request when setting up the procedure (which, as the explanatory report to the draft budget law confirms, is an additional requirement compared to the same roll-back regime envisaged for unilateral agreements) seems to foreclose the eligibility of currently pending (bilateral or multilateral) procedures to the described amendments. In this regards, an administrative clarification is certainly desirable in relation to the case where the roll-back request is made, or otherwise conveyed, by the foreign administrations involved in the procedure: in fact, as in Italy there is no express legal basis for bi- and multilateral advance agreements and given that, for this purpose, reference is made to double tax treaty law background for mutual agreement procedures, such roll-back matters may theoretically be subject to agreement between the involved authorities in the procedure.
Additionally, further legislative amendment would be appropriate so as to streamline pending procedures and therefore allow taxpayers to seek for the roll-back also in such contexts. That would avoid the discrimination already described with reference to unilateral agreements.
Contributing to the costs of the procedure for bilateral and multilateral agreements
Moreover, 2021 Budget Law further amends the requirements for access to bilateral and multilateral advance agreements, as the said law includes the payment of a fee based on the total turnover of the group:
- EUR 10,000 where group turnover amounts to less than 100 million;
- EUR 30,000 if group turnover ranges from 100 million to 750 million;
- EUR 50,000 in case of group turnover exceeding 750 million.
Those fees are halved if the taxpayer’s request is aimed at renewing a prior agreement.
The legislation at stake is inspired by the need for sharing the costs of the procedure, as also envisaged in other countries, such as Germany, the United States, Luxembourg, Portugal, Sweden, Croatia, the Czech Republic and Hungary.
Of course, those fees, which appear significant, should hopefully count towards the rapid conclusion of the procedures at hand.
In this respect, the adoption of implementing measures is demanded to a regulation to be issued by the Director of the Revenue Agency.
For a deeper discussion, please contact:
PwC TLS Avvocati e Commercialisti
PwC TLS Avvocati e Commercialisti