Transfer Pricing Documentation: Language Requirements and Compliance Challenges In a recent decision, the Italian Revenue Agency addressed the issue of language requirements for transfer pricing documentation. The agency's response to a multinational corporation's inquiry emphasized that while the Masterfile can be submitted in English, the local file must be presented in Italian. This decision, documented in response 174/2024, highlights the ongoing debate over the language used in tax documentation. The multinational corporation, engaged in cooperative compliance, argued that translating the local file into Italian was excessively burdensome. However, the agency reaffirmed the guidelines set forth in circular 15/E of 2021, which allow for the submission of annexes to the national documentation in a language other than Italian. Nevertheless, if these annexes are in a language other than Italian or English, and during audits or other investigative activities a translation is deemed necessary, the local entity must provide it. The agency's decision is based on the specific provisions of point 5.1.1 of the directive issued by the director of the Italian Revenue Agency, protocol no. 0360494, dated November 23, 2020. It is important to note that, according to article 1, paragraph 6 of Legislative Decree 471/1997, there is no obligation to prepare transfer pricing documentation. Instead, it is a requirement for taxpayers who wish to benefit from the penalty exemption provided by the regulation. Taxpayers must assess whether the benefit of the exemption justifies the cost of preparing the documentation, including any necessary translations. The language issue in tax documentation has long been a topic of discussion. Tax auditors are generally capable of interpreting documentation in English, as this is the language in which documents are typically written and used during tax audits. These documents form the basis of audit reports and assessments, and are attached without requiring translation. Furthermore, official documentation in this field is often in English. The last Italian translation of the OECD Guidelines, prepared by the Italian linguistic section of the OECD and the Ministry of Economy, dates back to the 2017 version. The \'YYYReport on the Attribution of Profits to Permanent Establishments\'YYY and the \'YYYAdditional Guidance on the Attribution of Profits to Permanent Establishments\'YYY have never been translated. Essentially, English is the common language for professionals in this field, whether they are taxpayers or financial administration officials, making the agency's directive seem outdated.

Further Insights on the Topic

• The role of language in international tax compliance.

• The impact of language requirements on multinational corporations.

• Historical context of language use in tax documentation.

  Critical Aspects and Potential Issues

• The burden of translation costs on businesses.

• The potential for misinterpretation due to language barriers.

• The balance between compliance and operational efficiency.

  Common Pitfalls and Typical Errors

• Failing to provide necessary translations in a timely manner.

• Misunderstanding the specific language requirements for different documents.

• Overlooking the importance of language in legal and tax compliance.

  Suggestions and Useful Guidelines

• Evaluate the cost-benefit ratio of translating documentation.

• Stay informed about current regulations and guidelines.

• Consider employing professional translation services to ensure accuracy.