In order not to be subject to VAT, the free supply must be included in the original supply contract

Prepared by Davide Accorsi and Paola Bramato

The Italian tax authorities’ ruling reply no. 584 of December 14, 2020 clarified that an agreement that does not have the purpose of redetermining the original price of the supply does not constitute an allowance pursuant to Article 15(1)(2) of Presidential Decree No. 633/1972.

In the case at issue, the company requesting the ruling, recognizing the inadequacy of the service originally agreed upon, supplemented the supply by selling additional goods and waiving the related claim against the customer.

The company has therefore asked to the Italian tax authorities whether the waiver of the price of the supply of the goods in question constitutes a revision of the price falling within the category of allowance/discounts referred to in Article 15(1)(2) of Presidential Decree No. 633/1972.

In particular, the mentioned provision states that “the open market value of goods supplied as a discount, premium or rebate in accordance with the original terms of the contract is excluded from the taxable amount, except for those whose supply is subject to a higher rate”.

In this regard, the Italian tax authorities observed that the agreement relating to the supply of additional goods not provided for in the original contractual terms, which was made in a separate deed and took place during the renegotiation of the original contract, had the purpose of redefining the obligations of the parties and, only indirectly, the effect of redetermining the initial price agreed for the supply.

Therefore, since there were no specific agreements relating to the additional supply under the original agreements of the parties, the supply of the additional equipment (with waiver of the relevant credit by the supplier) does not constitute an allowance outside the scope of VAT pursuant to Article 15(1)(2) of Presidential Decree No. 633/1972 but a free-of-charge supply, taxable under Article 2(2)(4) of Presidential Decree No. 633/72, having the supplier exercised his/her right to deduct the VAT on the goods acquired for the purpose of being supplied free of charge.

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