Italian Tax Authority confirms conditions for transfer pricing adjustments being subject to VAT

The Italian Tax Authority addressed the VAT relevance of transfer pricing adjustments within the applicant’s Group.

Initially, the group implemented aggregate year-end adjustments, allocating them across invoices with a general schedule. This approach was challenged, as the adjustments were seen as mere financial settlements not directly connected to the original supplies.

Following the assessment, the group amended its distribution agreement to expressly qualify prices as provisional and to require periodic true-ups supported by a detailed, transaction-by-transaction breakdown. Under this revised contractual framework, the Authority recognised the adjustments as variations of the consideration provided for the initial supplies, therefore falling within the scope of VAT.

The ruling highlights that the determinative element is not the transfer pricing method itself, but the demonstrable link between adjustments and specific supplies. This conclusion mirrors the principles developed in the VAT Committee’s Working Paper No. 923/2017, VEG's guidance, and is consistent with the Advocate General’s opinion in Arcomet (see Arcomet: Are Transfer Pricing Adjustments Potentially Subject to VAT? | DLA Piper), which emphasises a case-by-case assessment of the “direct link” requirement.

Moreover, the Ruling offers a concrete example of how contractual drafting can affect the VAT treatment of transfer pricing adjustments. In particular, the express qualification of prices as provisional and the requirement of a detailed allocation mechanism were decisive in shifting the tax treatment from an out-of-scope settlement to a VAT taxable adjustment.

 

Key takeaway

Groups operating in Italy should carefully review how their transfer pricing policies and intercompany agreements are drafted, since contractual wording and supporting documentation can decisively influence whether subsequent transfer pricing adjustments fall within or outside the scope of VAT.

 

Reference

Italian Tax Authority, Ruling No. 214 of 19 August 2025, Stampa pubblicazione