The transfer prices charged between related parties are under scrutiny in many jurisdictions worldwide. While companies typically consider transfer prices as, primarily, a corporate income tax issue, such adjustments can also have a VAT impact. In case of VAT mischaracterization of the TP adjustment, penalties could apply and, in some jurisdictions (such as Italy) criminal proceedings could be initiated in certain circumstances. Consequently, company tax managers should consider whether a TP cost allocation or TP adjustment gives rise to a supply of goods or services for VAT purposes, or whether the previously charged consideration should be adjusted.
Source Baker & McKenzie
