TP adjustments – to show or not to show in VAT settlements?

Many companies in capital groups make an annual price adjustment in transactions with a related company after the end of the year, in order to achieve a target level of profitability. The question arises – does such an adjustment affect VAT settlements and how should it be documented?

Although the subject of transfer pricing adjustments (the so-called TP adjustments) has been discussed every year for many years, it has not been regulated in the VAT Act, as is the case with income tax regulations. Therefore, in order to determine whether it affects VAT settlements and how it should be documented, an analysis of the rules established in this respect, in particular the provisions of the contract or the transfer pricing policy in force in the group, should be carried out with regard to the specific case.

On the basis of the tax rulings issued, it is already possible to speak of an established tax practice which, depending on the circumstances, distinguishes three ways of documenting the TP adjustment and its reporting in VAT settlements:

• if the adjustment is directly linked to a decrease or increase of the price of the supply of goods or services in a given period – then it should be documented by a corrective invoice and shown in the VAT accounts,
• if it constitutes additional remuneration for the supply of goods or services, it should be documented by means of an invoice and shown in the VAT accounts,
• if it is not related to specific deliveries of goods/services, prices, payments or invoices, but is only intended to compensate to a certain level of profitability (in order to achieve the marketability of prices in the group) – it can be documented by an accounting note (debit or credit note) and remains outside the VAT accounts.

This was also the position taken by the Ministry of Finance in its tax clarifications of 31 March 2021.

Therefore, in order to determine the VAT implications of transfer pricing adjustments, it is first of all necessary to ensure that the rules for making these adjustments are set out in writing – in a contract or other formal document (e.g. the group’s transfer pricing policy). On this basis, an analysis should be made.

However, as this issue is not regulated, if it is material in amount, in order to secure the tax position of companies, it is worth considering requesting an individual tax ruling to avoid later possible disputes with the authorities during a tax audit.