VAT Circular On Transactions Between Related Parties

In this respect, in a supply between closely related parties, for which the agreed or charged fee value is different from the normal value of the operation, the VAT base will be constituted by the normal value of the operation (fair market value).

The notion of closely related parties is defined as all persons or entities among which there exist personal or familial links, organisational links, property links, financial links or legal links.

Accordingly, when the recipient of the operation is not entitled to a 100% input VAT deduction right and the agreed or charged fee value is lower than the normal value of the operation, the parties must submit the supply to its normal value, regardless of the value agreed.

Furthermore, when the supply carried out entitles the provider to a partial input VAT deduction right, notwithstanding the person liable for payment of the tax, the normal value of the operation must always be the reference.

The normal value rule will also apply in the following situations:

Exempted transactions, according to article 44 of the VAT Law, in which there is no input VAT deduction right...