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Transfer Pricing and VAT
An Analysis of Two Overlapping Disciplines
This paper focusses on examining the interplay between transfer pricing adjustments and VAT. Firstly, the differences between TP and VAT as two various systems will be dealt with. On this basis in the second part, this paper will analyse the influence of TP adjustments on VAT settlements. Finally, the example of a case decided upon by the Italian Tax Authority (Agenzia delle Entrate) in November 2018, will shed some light on how European tax authorities tend to approach the discussed problem.
1. Introduction
Transfer pricing (TP) and VAT are areas of both domestic and international tax law that gained a significant importance over the years. TP, falling within the scope of corporate direct taxation, sets the rules applicable to the transactions within multinational enterprises (MNEs), which are responsible for a significant portion of global trade. At the same time, VAT, being the most prominent representative of indirect taxes, is the second most important source of budget revenue in the EU, regularly outperforming CIT and competing with Personal Income Tax, and is equally successful in many countries around the world. With two sets of taxation rules being that significant, there mi...