VAT and transfer pricing: what recent ECJ rulings mean for multinational groups

However, the ECJ has not introduced a uniform rule. Instead, it reiterates that VAT remains strictly transaction-based, meaning that TP adjustments must be assessed on their own VAT merits. The VAT treatment of TP adjustments depends primarily on whether the conditions for a taxable supply of services for consideration are met. In particular: 

1. There must be a legal relationship between the parties. 
2. It involves reciprocal performance. 
3. There is a direct link between a payment and an identifiable supply. 

Below, we highlight four key cases and the practical implications for multinational groups. 

Weatherford (C527/23): intra-group services and input VAT deduction 

In the Weatherford case, a Romanian group entity received intra-group services relating to IT, HR and accounting. The tax authority denied input VAT deduction, arguing that the services were also provided to other group entities and were not ‘necessary’ for the taxpayer’s own activity. 

The ECJ rejected this approach. It confirmed that the necessity or appropriateness of services is irrelevant for VAT purposes. Services may qualify as general costs even if they are used across multiple group entities; the key requirement is that the taxpayer demonstrates a direct link with its taxable activities. 

Högkullen (C808/23): TP aggregation does not determine VAT treatment 

In the Högkullen case, a holding company provided various management and support services to subsidiaries and charged a single cost-plus fee. While VAT is generally based on the subjective value agreed between the parties, EU Member States may apply specific anti-abuse rules for intra-group services under which VAT is calculated on the basis of the ‘open market value’. The Swedish tax authority argued that the services constituted a single bundled supply with no market equivalent, requiring valuation based on total cost. 

The ECJ clarified that services must be assessed on the basis of their actual characteristics. A single price does not, in itself, justify treating multiple services as one supply; TP aggregation, such as cost-plus pricing, does not determine VAT qualification. Where necessary, services must be analysed separately to determine the open market value.  

Arcomet (C726/23): The use of TP methodologies may be subject to VAT  

In the Arcomet case, a Romanian subsidiary received year-end invoices from its Belgian holding company to align its profit margin with a TP policy based on the transactional net margin method (TNMM). The ECJ held that such payments may constitute consideration for VAT purposes where: 

1. there is a contractual framework; 
2. services are actually supplied; and 
3. a direct link exists between the services and the remuneration. 

Importantly, the Court confirmed that the use of TP methodologies, such as the TNMM, does not preclude qualification as consideration. Tax authorities may also require supporting documentation beyond invoices to verify the existence of the services and their link to taxable outputs. 

Stellantis Portugal (C603/24): TP adjustments aimed at margin protection may fall outside VAT 

In the Stellantis case, a Portuguese distributor purchased vehicles from related manufacturers. Year-end TP adjustments, made through credit and debit notes, were applied to ensure a target profit margin, taking into account costs such as repairs and operating expenses. The tax authority treated these adjustments as payment for repair services. 

The Court reiterated that a transaction is subject to VAT only where there is a direct link between a service and the consideration, and a legal relationship involving reciprocal performance. On the facts, the Court did not identify such a link. The adjustments formed part of a pricing mechanism to ensure a target margin and were not consideration for a separate service. 

The Court therefore concluded that such adjustments do not, in themselves, constitute a VAT-taxable supply of services. It also indicated that they may instead be treated as price adjustments. 

Key takeaway: Not all TP adjustments are VAT-taxable— particularly where they relate to general profit allocation rather than identifiable services. 

Overall framework: positioning TP adjustments for VAT 

Taken together, recent ECJ case law establishes the following framework: 

1. No automatic link between TP and VAT: TP outcomes do not determine VAT treatment; each transaction must be analysed independently. 
2. Central importance of the ‘direct link’: VAT applies only where there is a clear legal relationship, reciprocal performance and a direct link between the payment and the service. This means that TP adjustments may have different VAT outcomes: 

• Arcomet-type: consideration for a specific service → VAT taxable. 
• Stellantis-type: general margin adjustment → outside scope/price adjustment. 

TP aggregation is not equal to VAT aggregation: A single TP charge may consist of multiple supplies for VAT purposes. 

Input VAT deduction remains principle-based: deduction cannot be denied on subjective grounds, but the taxpayer must demonstrate use for taxable transactions. Documentation is therefore key. 

Preparing for what’s next 

The evolving body of ECJ case law demonstrates that the relationship between VAT and transfer pricing is becoming increasingly nuanced. While transfer pricing outcomes may influence VAT considerations, the Court continues to reinforce a fundamental principle: VAT remains transaction based and must be assessed on its own merits. 
 
For multinational groups, the challenge is no longer simply ensuring transfer pricing compliance. It is understanding how intercompany arrangements, pricing adjustments and supporting documentation may be viewed across multiple tax frameworks simultaneously. As tax authorities increasingly examine these interactions, businesses should consider whether their current models provide sufficient clarity, consistency and evidence to support both their transfer pricing and VAT positions.  
 
Our VAT and transfer pricing specialists are closely monitoring these developments and helping organisations assess their potential impact. To discuss the implications for your business, please contact one of our experts.