Relevance for VAT purposes of price adjustments – Ruling no. 529/2021

prepared by Andrea Werner Beilin and Arcangelo Vitelli

With the Reply to the Ruling no. 529, dated 06 August 2021, the Italian tax authorities provided clarifications on the VAT treatment applicable to the price adjustments of goods determined on the basis of the profits shared between the parties.

In particular, in the case at hand, the Requester (hereinafter “Alfa”) and “Beta”, companies operating in the pharmaceutical sector, concluded a contract whereby:

  • Alfa was responsible for producing and developing the active drug substance; and
  • Beta was responsible for the purchase of the active ingredient from Alfa, its transformation into a finished product and the subsequent commercialization.

The above-mentioned companies (hereinafter also referred to as “the Parties”) have agreed on a specific pricing model for the active drug substance: at the time of the sale, Alfa applied a provisional price (i.e. “Target Supply Price”), which was subsequently adjusted at period end based on the profits carried out of by the Parties (i.e. “Profit True Up”).

In this respect, Alfa asked to the Italian tax authorities to confirm that the price adjustment was subject to VAT in Italy and, therefore, that it should affect the taxable amount of the drug substance, pursuant to article 13, Presidential Decree no. 633/1972.

The Italian tax authorities, reviewing the interpretative principles stated by the EU Court of Justice with reference to article 73, Directive 2006/112/EC (see European Court of Justice in its judgement of 7 November 2013 in Cases C-249/12 and C-250/12; judgement of 19 December 2012, in case C-549/11; judgement of 26 April 2012, in joined cases C-621/10 and C-129/11) confirmed the thesis proposed by Alfa.

In particular, according to the Italian tax authorities, the methods of determining the price described in the contract between the Parties provides a direct link (see European Commission Working Paper No. 923 of 28 February 2017), between the Profit True Up and the original supply of the drug substance.

Accordingly, in the case at hand, the amounts in question should be regarded as relevant for VAT purposes and, therefore, they should increase or decrease the taxable according to article 26, Presidential Decree no. 633/1972.

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Luca Lavazza

PwC TLS Avvocati e Commercialisti


Andrea Werner Beilin

PwC TLS Avvocati e Commercialisti

Senior Manager