Summary of CJEU Judgments | VAT & Transfer Pricing

VAT and Transfer Pricing. VAT and Transfer Pricing. At first glance, two subjects that seem unrelated. This has also been the approach taken in practice for decades. However, a discussion on the correlation between these two topics has been emerging for some time. The key question is: do adjustments based on Transfer Pricing rules have an impact on VAT?

Remarkably, the CJEU has now ruled 3 times in the period December 2024 – September 2025! In addition, there is 1 case pending before the CJEU.

The relationship between Transfer Pricing and VAT is complex as Transfer Pricing regulates profits at the company level, while VAT  only applies to individual transactions. There is certainly no automatic correlation between Transfer Pricing and VAT.

In practice, this often results in focusing solely on this aspect. In other words, Transfer Pricing corrections do not require any action regarding VAT. Unfortunately, that is not the case. The effect on the VAT will vary based on the specific facts and circumstances involved.

The following section outlines four cases that have been or are currently under consideration by the CJEU. This overview presents a simplified account of the relevant facts and circumstances, focusing on the main aspects of each case.

In the (professional) literature, these four cases are usually discussed under the title 'Transfer Pricing and VAT'. Please note that other relevant VAT issues are also covered, such as the position of holding companies and the right to deduct VAT in general. A common factor in these cases is that local tax authorities and/or companies have utilised Transfer Pricing considerations to resolve the VAT matters in their favour. The summaries for each case provide an explanation of the various perspectives.

These judgments offer greater clarity regarding the interaction between Transfer Pricing and VAT. Given that each situation presents unique facts and circumstances, it is likely that further cases will arise. Accordingly, we recommend that you review the VAT implications of your Transfer Pricing policy whenever drafting or revising such policies.

Weatherford | C-527/23 | December 2024 | Services within a multinational | Right to deduct VAT

In the overview with the subject "Transfer Pricing and VAT", this case is mentioned first, although it does not appear to have a direct connection to the topic. There is, however, an indirect link due to the services exchanged between group companies and the allocation of costs for these services.

In this case, a group company had purchased services from various other entities within this group. These include IT services, human resources services and administrative services. According to the tax authorities, this group company was not entitled to deduct VAT. Specifically, there was an absence of the required relevance between the purchased services and the company's own activities. The purchased services were not considered necessary for carrying out its own operations. The tax authorities indicated that this relevance was missing because the services had been provided to other group companies at the same time, resulting in benefits for those companies as well.

The CJEU provides a concise analysis and concludes that the involvement of multiple customers or group companies is entirely immaterial. Furthermore, it is not within the purview of the tax authorities to evaluate the necessity of the services acquired.

Högkullen | C-808/23 | July 2025 | How to determine the consideration?

In this case, there is also an indirect relationship between Transfer Pricing and VAT in view of the services between a Holding and group companies. The present case is not so much about the allocation of the costs of those services as about the calculation of those costs. The tax authorities have clearly chosen this angle to tackle a holding structure, in which the Holding deducts all VAT and only partially passes on the costs to the group companies. The group companies were partly entitled to deduct VAT.

In this case, the costs were calculated on the basis of the cost-plus method. However, a significant part of the costs incurred by the Holding was not taken into account. 

The tax authorities addressed this issue by adjusting the remuneration charged to group companies using the cost-plus method. The VAT Directive permits, in specific circumstances, the use of 'open market value' for calculating compensation instead of relying solely on the amount agreed upon by the parties. In short, the 'open market value' means the price that would have to be paid for those services in an open market. This would have significantly increased the fee charged by the Holding and thus also the amount of VAT due (which could only be reclaimed in part by the group companies). The tax authorities went a step further by stating that the services as provided by the Holding should be considered a composite service. That composite service cannot be found on an open market. This is unique to each group. Because no comparable services could be found, the tax authorities took the position that the 'cost price' method should be used. In other words, on the basis of all the costs incurred by the Holding. The fee charged by the Holding would therefore become even more 'expensive'. However, the CJEU decided that the method used by the tax authorities is incorrect. The tax authorities cannot argue that all services as provided by the Holding qualify as a composite service. This service therefore actually falls apart into various services that can be distinguished, which must also be priced separately. 

Arcomet Towercranes | C-726/23 | September 2025 | Transfer Pricing adjustment - services for VAT?

In this case, the relationship between TP and VAT is addressed in the most direct manner. Under this scenario, services are also provided between companies belonging to the same group. In short, the group's core activity is crane rental. The Belgium-based Holding sought suppliers for its subsidiaries and negotiated the contractual terms with these suppliers. These suppliers then supplied directly to the subsidiaries. As a result, the Romania-based subsidiary was able to benefit from better prices and delivery conditions. 

With regard to the Transfer Pricing rules, they had committed to the transactional net margin method. For these parties, this meant (in summary) that in the event of a certain loss, the group company established in Romania could send an invoice to the Holding in Belgium. In the event of a certain profit of the Romanian company, the Holding could send an invoice to the Romanian company.

The key question in this case was whether this Transfer Pricing system constitutes a service for VAT? For reasons specific to this case, the group company argued that there was no supply for VAT purposes. Indeed, at first sight, only the profit is adjusted at company level, which has no bearing on an individual transaction that is taxable for VAT purposes. In this instance, services are provided for a predetermined remuneration, resulting in a taxable supply for VAT purposes. The determining factors are the agreement between the Holding and the group company, pursuant to which the Holding committed to deliver specified commercial services that conferred a clear and tangible benefit upon the group company. In return, the group company was contractually obligated to pay an annual fee.

The CJEU makes it clear that it is irrelevant that the remuneration paid by the group company is only aimed at adjusting the level of profit in accordance with the OECD Guidelines. The fact remains that that remuneration for the levying of VAT may still constitute consideration for a supply. The fact that the remuneration is variable given the nature of the remuneration is also irrelevant. The remuneration is agreed, it is quantifiable on the basis of precise criteria and certainly not voluntary or uncertain. Only if the existence of a remuneration is uncertain can there be no VAT levying because in that situation there is no direct link between the supply and the (possible) remuneration.

Stellantis | C-603/24 | Case pending| Charging repair costs a service?

This case is still pending before the CJEU. In view of the judgments in the aforementioned cases, it remains to be seen how this case will be dealt with. The underlying questions seem to be largely identical. In any case, to the case of Arcomet Towercranes. In the case of Stellantis, the Portuguese car distributor is able to charge repair costs to the vehicle manufacturer. These costs are then settled as discounts on previously delivered vehicles. This issue may be significant, but it appears the CJEU has already resolved it.

It should be noted that the facts pertain to the period before 2010, during which a different VAT system was in effect for determining the place of taxation for services. According to the current rules implemented from 2010 onwards, these services would not be subject to VAT in Portugal, making this part of the question not applicable under today's regulations.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com