ECJ – C-558/19 (Impresa Pizzarotti & C SPA Italia Sucursala Cluj) – Freedom of Establishment – Judgment on Transfer Pricing Adjustment

Source KPMG

While this is not a VAT case, the judgment may hint to the qualification of Transfer Pricing Adjustment

On October 8, 2020 the Court of Justice of the EU (CJEU) issued its decision in case C-558/19, concerning a transfer pricing adjustment imposed by the Romanian tax authority on the Romanian branch of an Italian company.

As regards the question of whether the legislation goes beyond what is necessary to attain the objective pursued, the Court noted that the income adjustment imposed concerns only the difference between the market price of the transaction at issue and the price actually applied by the parties and that taxpayers are given the opportunity to demonstrate that there were objective reasons for concluding the transaction at a price which did not reflect the market price.

Decision Curia

Article 49 TFEU must be interpreted as not precluding, in principle, legislation of a Member State under which a transfer of money from a resident branch to its parent company established in another Member State may be reclassified as a ‘revenue-generating transaction’, with the consequent obligation to apply the rules on transfer pricing, whereas, if the same transaction had been effected between a company branch and a parent company, both of which were established in the same Member State, that transaction would not have been classified in the same way and the rules on transfer pricing would not have been applied.

 

---

---