Penalty Protection for Hybrids

As known, by February 27, 2024, within 60 days of the enactment of Legislative Decree 209/2023, a dedicated implementing ministerial decree (DM) will be issued to provide additional insights into Penalty Protection for Hybrids.


This DM will activate the provisions related to “hybrid misalignments,” offering guidance on their implementation and further clarifying the hybrid penalty protection regime introduced by the aforementioned Legislative Decree.

Hybrid misalignments refer to asymmetrical tax treatment by two or more tax systems concerning entities, permanent establishments, legal transactions, and income components capable of generating inconsistent (and thus, “hybrid”) international tax effects, such as those related to deduction without inclusion and double deduction.

Legislative Decree 209/2023 Overview

Legislative Decree 209/2023 aims to foster compliance between the tax administration and taxpayers by outlining provisions on the documentation of hybrid misalignments. It introduces a rewarding mechanism for operations that may potentially lead to misalignments. Specifically, Article 61, paragraph 1 of Legislative Decree 209/2023 (known as the “International Taxation Decree”) amends Article 1 of Legislative Decree 471/97 by introducing a new paragraph 6-bis. This provision dictates the non-application of penalties for inaccurate declarations in case of disputes related to hybrid misalignment provisions resulting in increased tax or reduced credit, under certain conditions.

“Rewarding Regime” for Hybrids

Article 61 of the International Taxation Decree introduces the possibility for taxpayers (part of both domestic and international groups) to prepare a comprehensive set of documents to obtain the so-called “penalty protection” in case of disputes related to hybrid misalignments, similar to the existing provisions for transfer pricing.

In the context of transfer pricing, the preparation of “appropriate” documentation (consisting of a Masterfile containing group information and a National Documentation reporting information about the resident company) grants access to the “penalty protection” regime. This means that in cases of adjusting taxable income under Article 110, paragraph 7, Income Tax Consolidation Act, the penalties for inaccurate declarations (ranging from 90% to 180% of the additional tax due) become inapplicable if:

  • The taxpayer communicates its possession of such documentation in the tax return; and
  • Submits this documentation during a tax audit.

Expanding this discipline to the regime concerning hybrid misalignments, penalty protection is applicable when:

  • The taxpayer prepares anti-hybrid documentation;
  • The possession of the documentation, with a “certainty date,” is communicated to the Revenue Agency by the tax return deadline (as per the standard);
  • The documentation includes a comprehensive and truthful description of the circumstances and application methods of the reactive rules applicable based on the taxpayer’s role in identifying and potentially rectifying hybrid misalignments;
  • No audits, inspections, verifications, or other administrative activities have commenced of which the author or the jointly liable parties have had formal knowledge.

It is important to note that documentation related to hybrid misalignments, similar to transfer pricing documentation, represents a “burden” (not an obligation) with essential characteristics:

  • Preparation before the tax return submission and communication of possession to the Revenue Agency;
  • Certainty date, through digital signature and timestamp;
  • Content suitability, to be identified in the upcoming DM.


As previously mentioned, the specifics of the documentation for misalignments are subject to a forthcoming DM from the Ministry of Economy and Finance. Nevertheless, the current approach implies that within a multinational group, all transactions between related parties, residing and/or located in at least two different states, should undergo scrutiny under this discipline.

The associated responsibilities are expected to be distributed, with the tax administration tasked with demonstrating the “facts” of any violation and the taxpayer required to provide evidence that such circumstances do not apply.

Detailed provisions are eagerly awaited by the maximum deadline of February 27, 2024.


LDP provides Tax, Law and payroll  scalable and customised services and solutions. LDP Professional have also matured a significant expertise in  M&A, Corporate Finance, Transfer Price, Global Mobility Consultancy and Process Automation. 

Sign up to our newsletter

Subscribe to our Newsletter

Subscribe Form