The Italian tax authority (“Agenzia delle Entrate”) addressed (once again) the VAT treatment of transfer pricing year-end adjustments in its response to ruling No. 884, published on 30 December 2021.
Conditions to consider a TP adjustment as a transaction subject to VAT:
- a direct link between the year-end adjustment and the supplies of goods originally made
- a consideration (in cash or in kind) is established for the year-end adjustment
- a direct link between the supply of goods or services and the consideration
Decision ruling: the year-end adjustment, although involving for the foreign subsidiaries “the recognition of an extra cost aimed at lowering their operating margin,” are not “directly related to the original supplies of finished products made by the petitioner.”
Source: mnetax.com
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