In this judgment, the Court determined that payments calculated using an OECD transfer pricing method and charged by a principal company to an operating company may constitute remuneration for services falling within the scope of VAT. In addition, the Advocate General (AG) recently delivered her Opinion in the pending Stellantis Portugal (C‑603/24) case. According to the AG, payments calculated under TP rules may fall within the scope of VAT, depending on how the underlying arrangements are structured.
As a result, internationally operating groups must carefully consider the VAT consequences of intragroup transactions and TP adjustments to prevent assessments, penalties, non-deductible VAT and operational risks.
This article provides an overview of the latest EU developments in the VAT treatment of intragroup transactions and TP adjustments.
Background
TP adjustments in the EU can fall outside or within the scope of VAT. They may affect either the supplier or the recipient in an intragroup transaction. Broadly, TP adjustments can be:
Outside the scope of EU VAT, such as:
- unilateral profit adjustments by tax authorities, intended solely to bring profits to the required level; or
- other pure profit allocations without a direct link to any specific supply.
Within the scope of EU VAT, such as:
- price adjustments related to earlier supplies; or
- payments that qualify as remuneration for a separate and identifiable supply for VAT purposes.
Because the correct classification can be unclear, the CJEU’s rulings provide important guidance for businesses.
Arcomet ruling
The Arcomet case addresses whether service fees based on the Transactional Net Margin Method (TNMM) fall within the scope of VAT.
Facts
A Belgian parent company provided centralised commercial and managerial services to its Romanian subsidiary. These activities included contract negotiations with suppliers, fleet administration, strategic oversight, and procurement support. The Romanian subsidiary carried out operational activities, such as acquiring or leasing cranes and selling or renting them to third‑party customers.
The profits of the Romanian subsidiary were adjusted to align with the outcomes of a TNMM benchmark study. The adjustments were made to ensure that the intercompany transactions reflected the arm’s‑length principle. Following a tax audit, the tax authorities denied VAT deductibility on the TP adjustments and imposed interest and penalties, arguing that the services allegedly provided were not sufficiently substantiated.
Decision
The CJEU held that the treatment of TP adjustments for VAT purposes must be assessed on a case‑by‑case basis.
Payments for services are within VAT scope when they are made under a contractual arrangement.
A fee calculated according to TNMM criteria may constitute consideration for services, provided a legal relationship exists between the supplier and the recipient and there is a direct link between the services and the remuneration.
In Arcomet, the Court found such a legal relationship and a direct link to exist. The underlying agreement did not specify a fixed fee but did set out a clear method for calculating it. This constituted sufficient consideration linking the services provided to the payments made.
Tax authorities may request evidence beyond invoices.
The CJEU confirmed that VAT deductibility depends on the nature of the activities and the supporting documentation. Businesses must be able to prove that services were actually supplied and used for taxable business purposes. The tax authorities may request additional documentation, provided the request is proportionate.
Conclusion
TP adjustments may fall within the scope of VAT if certain conditions are met. The burden of proof lies with the taxpayer, who must demonstrate entitlement to VAT recovery. Tax authorities may require supporting documents beyond invoices.
Stellantis case
The Advocate General Kokott delivered her Opinion in the Stellantis case on 15 January 2026.
Facts
Stellantis Portugal operated as a domestic distribution company, purchasing vehicles from European group manufacturers and selling them to independent dealers, who in turn sold them to end customers.
Under the group’s TP policy, Stellantis Portugal was required to achieve a specific operating margin for its distribution activities. The margin was determined using a resale‑minus approach based on external sale prices and distribution costs. Preliminary vehicle prices were set, after which TP adjustments ensured that Stellantis achieved the agreed margin.
Where manufacturing defects arose, final customers had repairs performed by dealers. Dealers invoiced Stellantis for the repairs (plus VAT). Stellantis bore all after‑sales and other operating costs and reported them to the manufacturers, who then adjusted the sale price of vehicles to reflect the costs borne by Stellantis. These adjustments were documented via credit or debit notes.
The Portuguese tax authorities argued that Stellantis provided VAT‑taxable services to the manufacturers by recharging repair costs, leading to VAT assessments exceeding EUR 1.5 million.
Question
The CJEU was asked whether retrospective TP adjustments constitute:
- a profit adjustment outside VAT scope,
- a payment for a separate service within VAT scope, or
- a change in the taxable amount of the underlying sale of goods.
Opinion
The AG outlined the possible VAT consequences of TP adjustments:
- Unilateral profit adjustments made solely for income allocation between jurisdictions are not relevant for VAT.
- TP adjustments reflecting a separate supply of services for consideration fall within VAT scope.
- TP adjustments that modify a variable sale price relate to the taxable amount of the original supply of goods. Under Article 90 of the VAT Directive, reductions in price after the supply reduce the taxable amount.
AG’s conclusion
The AG concluded that no VAT correction should apply in Stellantis, because there was no contract that could justify a supply of services by Stellantis to the manufacturers. However, a price adjustment may still affect the taxable amount of the original transaction.
Key distinctions between Stellantis and Arcomet
- In Arcomet, TP payments depended on subsidiary’s profits; in Stellantis, they adjusted vehicle prices based on costs made by the buyer.
- In Arcomet, a contract existed for the provision of services; in Stellantis, no such agreement existed.
- In Arcomet, invoices were issued for services; in Stellantis, credit or debit notes adjusted vehicle prices.
Next steps
The CJEU will provide further clarification in its forthcoming judgment. The Court is not required to follow the AG’s Opinion, so uncertainty remains until the final decision is issued.
Conclusion based on existing legislation
Transfer pricing adjustments may:
- modify the taxable amount of a supply, triggering VAT corrections; or
- fall within the scope of VAT when they reflect remuneration for services under a legal relationship.
Where an adjustment can be linked to a specific transaction—either as a price correction or as payment for a separate service, it may have VAT implications for both supplier and recipient.
Practical impact
Where a direct link to a prior transaction exists, or where adjustments result in remuneration for goods or services, businesses must ensure proper VAT compliance. This may include:
- issuing VAT‑compliant invoices,
- reporting payable or deductible VAT,
- correcting previously filed VAT returns, and
- adjusting EC Sales listings.
These steps can increase administrative and system workloads, such as applying correct tax codes in ERP systems.
Proper documentation, including invoices, credit notes, and evidence showing the link between services and consideration, is essential to substantiating the VAT position. Inadequate handling may result in assessments, penalties, and interest. Financial institutions and other exempt entities should pay particular attention, as they may face unrecoverable VAT.
Recommended action points for businesses
- Conclude clear intercompany contracts and assess whether a genuine supply exists for VAT purposes.
- Analyse the VAT consequences of intragroup transactions and TP arrangements.
- Assess each intragroup transaction and TP adjustment on an individual basis.
- Determine whether a sufficiently direct link exists between a payment and an intragroup transaction.
- Maintain evidence of services provided, consideration received, and their relevance to business activities.
- Ensure that invoices for TP adjustments falling within VAT scope comply with VAT requirements and describe services accurately.
- Keep robust documentation supporting the VAT treatment, the alignment between contracts and services, and VAT‑compliant invoicing.
The CJEU will further clarify the VAT treatment of transfer pricing adjustments in its judgment in the Stellantis case.
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