Tax authorities clarify VAT treatment of price adjustments

Italy’s tax authorities released a ruling and a resolution in August 2021 that clarify the VAT treatment of price adjustments on the taxable base and the imposition of penalties for wrongly charged input VAT, respectively.

The tax authorities clarify in the ruling that the price adjustment is relevant based on the following:

  • There is a direct link between the amount determined as a final adjustment and the provisional sale price of the active ingredient; the profit true-up represents a mere adjustment of the original sales price; and
  • The adjustment directly affects the VAT taxable base, either by decreasing or increasing it, depending on the difference in profits derived by the two companies.

Thus, the profit true-up amount is subject to Italian VAT.

Source BDO



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