Year-end TP adjustments may not be relevant for VAT purposes

With the Reply to ruling n. 884 dated 30.12.2021, the Italian Tax Authorities have confirmed that a year-end TP adjustment aimed at ensuring that the tested party gains an arm’s length margin is not relevant for VAT purposes. This is consistent with former official clarifications (see Reply to ruling n. 60 dated 2.11.2018) and with the EU Commission interpretation (see Working paper n. 923 dated 28.2.2017).

Basically this applies provided that:
(i) the TP adjustment does not constitute the consideration of a supply of goods or provision of services, i.e. there is not a direct link between the TP adjustment and the transactions originally occurred between the related parties; and
(ii) the TP adjustment does not constitute a change of the taxable amount referred to the transactions originally occurred between the related parties.

Source

• WTS
• Agenzia Entrate– Ruling no. 884

See also

• Remember … VAT Committee WP#923 on VAT implications of Transfer Pricing (Feb 28, 2017)
• Arm’s Length Principle and Taxable Amount in the VAT Directive
• Remember … VAT Expert Group on Transfer Pricing Adjustments – Paper/Opinion issued on April 18, 2018