- Increased VAT Audit Focus: Since mid-2025, the Italian Tax Authorities (ITA) have intensified audits on financial intermediaries, particularly regarding the VAT treatment of year-end transfer pricing (TP) adjustments, questioning their classification as “VAT-relevant consideration.”
- Criteria for VAT Relevance: The ITA stipulates that for TP adjustments to be considered VAT-relevant, they must constitute consideration, relate to identifiable transactions, and be supported by direct documentation linking them to original supplies, distinguishing between adjustments that affect the VAT taxable base and those that merely align margins.
- Recommendations for Compliance: To mitigate VAT compliance risks, taxpayers are advised to conduct internal assessments of past TP adjustments, update intercompany agreements, ensure thorough documentation, align invoicing practices with VAT requirements, and engage proactively with tax authorities for clarity on interpretations.
Source EY
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