In Italy, the discipline of transfer pricing states that in intra-group transactions between entities from different countries, where one is resident in Italy, transactions must take place on an arm’s length basis. In other words, transactions are based on freely competitive prices and under comparable circumstances.
Companies carefully treat the transfer pricing adjustments from a corporate income tax perspective. However, less attention is paid from a VAT perspective.
It’s worth mentioning that in most cases, the transfer price adjustments are profitability adjustments (rather than price) of the transactions carried out between associated companies.
However, treating the transfer pricing adjustments as outside the scope of VAT might cause problems in case of a tax authority audit and re-qualification of the transactions.
Source: SOVOS
