Edited by Davide Accorsi and Stefania Lolli
With ruling reply no. 213/2025 of August 19, 2025, the Italian tax authorities confirmed that the importer may deduct the VAT paid at customs on goods owned by third parties, reiterating requirements already indicated in previously issued guidelines[1]. In this case, the tax authorities seem to allow this possibility even when the importer carries out processing on behalf of third parties. However, the facts outlined in the reply to the ruling request are peculiar and, in the opinion of the authors, the clarifications provided may not be entirely sufficient to resolve all outstanding uncertainties regarding the subject.
The case concerns a company (Alfa) that markets pharmaceutical products after processing carried out within the Italian territory. Specifically, the flow for which clarification was sought involves the production and marketing of a drug (YY). For this purpose, Alfa imports from China a production factor (ZZ) owned by a Japanese company (Beta). Alfa engages a third party, Gamma, to process ZZ along with other production factors. Subsequently, Alfa sells YY to Beta, with the product shipped from Italy to Germany or to destinations outside the EU.
Graphically, the mentioned flow can be represented as follows:
One unclear aspect of the facts presented is found in the following description: “the basic production factor ZZ will formally remain the property of the Japanese client, who will transfer it to the applicant free of charge, to facilitate the production, commercial, and economic flow. In detail, the transfer of this fungible raw material between the Japanese owner and Alfa will take place without any payment, that is, free of charge, even though Alfa will have the power to dispose of it as if it were the owner”.
Moreover, from the reported facts, it is not entirely clear whether the consideration invoiced by Alfa to Beta for YY also includes the cost of ZZ.
After reviewing the relevant national and EU regulations[2], the Italian tax authorities refer to EU case law, according to which:
- “The existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is necessary, in principle, before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement.
- The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (…).
- A taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole”[3].
Based on the above, the Italian tax authorities, in line with their previous guidelines, reiterates that, for the purpose of exercising the right to deduct VAT on imports, ownership of the imported goods is not a necessary condition; rather, it is required that:
- the goods or services acquired have an immediate and direct link with the purpose of business activity, that is, they are pertinent to it;
- the customs declaration is recorded in the purchase register as per Article 25 of Presidential Decree no. 633/1972.
In the case under review, the Italian tax authorities recognize that “the applicant carries out the activity of distribution and sale of the drug YY, obtained using, among other things, the imported active ingredient (ZZ), and in this regard, the direct and immediate link between the use of the imported goods and the business activity seems to be satisfied”.
On the other hand, the Italian tax authorities point out that “the operations that make up the commercial flow of the drug in question, from importation to sale, involve contractual relationships between the applicant and the Japanese client, on one side, and between the applicant and the company responsible for transforming the production factors into the finished product, on the other, which are not well defined in their essential aspects, nor can they be analyzed by the tax authorities in the absence of the contracts signed between the parties”.
Therefore, the Italian tax authorities conclude that “the VAT paid at customs by the applicant at the time of importing the goods in question can be considered a cost related to the downstream operations that will be carried out by the Company (i.e. the marketing of the drug), and therefore, can be deducted provided that, in accordance with the principles drawn from EU case law, the expenses related to the import actually incurred by the applicant and borne by it are able to influence the price of the sales made by the company as a taxable person”.
As previously noted, the flow being examined is similar to that of a manufacturer who, when dealing with a non-resident client in Italy, frequently imports raw materials on the client’s behalf. Specifically, Alfa imports the active ingredient ZZ, owned by Beta, to produce the drug YY on behalf of Beta, who is the final purchaser. However, in the case addressed by this ruling, the tax authorities note that the connection between the imported active ingredient and the activity carried out by Alfa mainly concerns the commercial sphere (i.e., the sale of the drug), rather than the production sphere.
In this regard, the tax authorities point out that Alfa’s incurrence of the import-related expenses appears suitable to influence the price of the sales made by Alfa. Nevertheless, it is not clear whether this circumstance would also apply in the event that the contract between Alfa and Beta related solely to the processing of the goods, rather than their production and sale, and whether, in reaching the solution stated in the cited answer, the tax authorities also considered the aforementioned circumstance—mentioned when describing the facts, but not expressly cited among the supporting elements—of the alleged transfer to Alfa of the power to dispose of the active ingredient ZZ as if it were the owner.
[1] Please refer to resolution letters n. 346/2008 and n. 96/2007 and ruling replies n. 6/2019, n. 509/2021 and n. 410/2022.
[2] Article 19, paragraph 1, and Article 67 of Presidential Decree no. 633/1972, Article 38 of Presidential Decree 43/1973, article 77 of Regulation (UE) no. 952/2013 and Article 201 of Directive no. 2006/112/EC.
[3] Please refer to Court of Justice of the European Union, Case C-132/16, Iberdrola, paragraphs 28 and 29. The Italian tax authorities also refers to the judgments of the Court of Justice of the European Union in Cases C187/14, DVS Road A/S, and C621/19, Weindel Logistik Service, which set out the same principle in two different situations.
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