Italy: Transfer Pricing and VAT

In general, fiscal authorities expect that the transfer pricing system within multinational Groups ensures that so-called ”routine-entities” achieve a positive, moderate and constant profit margin (often ”return on sales”).

In order to achieve this goal, many multinational Groups define their transfer prices according to the Transactional Net Margin Method (short ”TNMM”), where they determine appropriate profit margins by relying on database studies. In case the ”routine-entity” does not achieve an appropriate profit margin at year end, adjustments (normally in the form of credit or debit notes) are issued. Italian Fiscal Authority now indicated how such year-end-adjustments should be treated from a VAT perspective (see ”Risposta a interpello 60/2018”).

According to the Italian Fiscal Authorities, these kind of adjustments should generally not have any effect on VAT. Additionally, also the Intrastat-Communications should not have to be adjusted. However, in order to ensure the ”VAT neutrality” of transfer price adjustments, it is necessary that the adjustment cannot be linked to the single underlying transactions (or, in other words, that the adjustment cannot be broken down to the single product specific transfer price). The statement on the general neutrality of year-end-adjustments on VAT should however not be applied without a deeper analysis of the relevant facts and circumstances (especially the contractual conditions).