The Tax Relevance of Transfer Pricing Adjustments

Tax deduction
The Lombardy Tax Court of Second Instance (Judgment No. 1828/21/2024) recognised the deductibility of transfer pricing adjustments. These adjustments, often introduced at the end of the year, serve to realign actual results with initial forecasts and thus ensure compliance with the arm's length principle.
Already the OECD (since 2012) and the EU Joint Transfer Pricing Forum (in 2014) had expressed a favourable orientation, provided certain requirements were met (symmetry between the parties, consistency over time, adjustment charged to the balance sheet before the tax return).
The Supreme Court of Cassazione, in previous rulings (e.g., No. 20054/2014), has also ruled in favour of
full deductibility.
In the case examined by the Lombardy Court, Agenzia delle Entrate contested the application of Article 110, paragraph 7 of the Tuir, but the judges confirmed the legitimacy of the method (Tnmm) and the correct accounting (according to the well-known principle of so-called enhanced derivation).

OIC 34 and the new accounting classification
With the OIC 34 document, the classification of transfer pricing adjustments changes from the 2024 financial statements: they are considered 'variable consideration' and are to be allocated to revenue (item A1) or costs (B6 o B7), as the case may be.
Previously, debit/credit notes related to adjustments were often booked under“other income/expenses” (A5 o B14). The new approach promotes greater consistency and clarity in the financial statements.

Practical effects
Unchanged operating result: the impact on the operating result does not change, but the inclusion under revenues or costs affects the profitability indicators (e.g. ROS), as the denominator relating to revenues (or the value of costs) changes.
The accounting distinction between margin adjustments and price adjustments, which remain relevant for VAT purposes only, disappears.