The case in the tax ruling referred to transfer pricing adjustments made to permit the applicant enterprise to reach the minimum profit level provided in the group TP policy. Specifically, the applicant company provided goods and services to a related company. According to an agreement between them, the former received remuneration from the latter for the difference between the amount of profit actually
The ruling clarified that the adjustment cannot be qualified as “remuneration for a specific supply transaction” because it is essentially a remuneration for a financial risk assumed, to ensure that the applicant was remunerated for the goods supplied at arm’s length. Hence, what needs to be determined is whether the adjustments were practically modifying the prices paid for the supply of goods/services and, therefore, the VAT taxable base of the transactions between the two companies. To this purpose, the tax authority examined if there was a direct link between such amounts and the supplies of goods/services, in line with the European Commission’s Working Paper No. 923/28.02.2017.
In this working paper, the VAT committee considered the potential VAT-related implications of the TP rules provided
- There is
consideration, i.e. some kind of compensation monetary or in kind for the adjustment;
- The transactions for the provision of goods or services to which the consideration refers are duly identified; and
- There is a direct link between the transactions and the consideration.
Thus, an adjustment following application of the transactional net margin method (TNMM) to align the company’s
From the working paper, it arises that although the
In light of the above, the ruling did not identify a direct link between the TP adjustments and the supply of goods and services. As a result, such adjustments could not be considered to lead to a modification of the VAT taxable base in relation to these transactions.
Antonella Della Rovere
Crowe Valente / Valente Associati GEB Partners www.crowevalente.it