On November 28 2017, new regulation was released by the Italian Revenue Agency for the implementation of country-by-country reporting (CbCR), concerning the way of presentation of CbC reports in Italy.
From the outset it is noted that Italian legislation on CbCR is in line with OECD recommendations in the context of the BEPS project (Action 13), as well as with the European Directive 2016/881/EU.
The CbCR obligation is imposed primarily on Italian ultimate parent companies of multinational groups with total consolidated group revenue equal to or exceeding €750 million ($884 million) in the tax year preceding the year of reporting.
CbCR obligations are further imposed on Italian subsidiaries of foreign multinational groups, where consolidated revenue meets the aforementioned threshold, if (at least) one of the following occurs:
• The ultimate parent of the group has no CbCR obligation in its jurisdiction of tax residence (yet) – and does not proceed with voluntary filing;
• No agreement is in effect for the automatic exchange of CbC reports between Italy and the jurisdiction of residence of the ultimate parent company within the 12 month deadline for reporting;
• There is systematic failure in compliance with such – existent – agreement by the said jurisdiction.
Nevertheless, Italian subsidiaries can be relieved from the above obligation through appointment by the foreign ultimate parent company of a surrogate parent entity to fulfill the CbCR obligation for the group, filing in its own tax residence jurisdiction. In case such surrogate parent entity is resident in a non-EU country, relief is conditioned on the existence of (i) CbCR obligation in such country and (ii) effective agreement for automatic exchange of CbC reports between Italy and such country for the relevant year.
Reporting entities must communicate within 12 months from the last day of the reporting tax year of the group (i.e. for tax year 2016, from December 31 2016) a list of the group entities resident in each jurisdiction where the group performs its activities, indicating the nature of each entity’s main activity (or activities).
The CbC report shall include all entities fully or pro-rata consolidated, excluding those consolidated with the equity method.
In addition, the CbC report must include the following information, aggregated per jurisdiction (i.e. reported as a sum for all group entities resident in each jurisdiction):
• Revenues, with specific indication of (i) revenues generated in intercompany transactions, (ii) revenues generated in transactions with third parties and (iii) total revenues;
• Profit (loss) before income tax;
• Income tax actually paid during the relevant tax year (in the jurisdiction of residence and abroad);
• Income tax accrued (current tax year) on taxable profit (loss) of the year of reporting, irrespective of payment;
• Stated capital consisting of the share capital of the relevant entities;
• Accumulated earnings;
• Total number of employees on a full-time basis;
• Tangible assets, at net accounting values as per the balance sheet.
For the compilation of the CbC report, taxpayers must systematically use the same source of data in the course of the years, or explain the use of different sources in case of change.
The amounts included in the CbC report shall be referred in the currency used by the reporting entity either in the consolidated financial statements or in its own financial statements.
The Italian Revenue Agency processes the data communicated and transmits them to the competent authorities of the EU member state(s) and/or other jurisdictions with which there is effective agreement for the exchange of such data, where the group exercises activities.
On December 11 2017, the Italian Revenue Agency postponed the deadline provided for the first submission of the communication related to tax year 2016 from December 31 2017 to February 9 2018 (i.e., within 60 days from December 11).
Further guidance on the implementation of CbCR was also released at an international level by the OECD on November 30 2017, detailing specific issues such as the definition of total consolidated group revenue. The purpose is to enhance legal certainty for both tax administrations and taxpayers. With deadlines approaching, we will soon see whether the materials circulated and rules set offer adequate guidance.
Antonella Della Rovere
Partner, Valente Associati GEB Partners
Tax manager, Valente Associati GEB Partners