VAT and transfer pricing: recent ECJ guidance 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 for consideration are met. In particular:

a)     there must be a legal relationship between the parties;

b)     involving reciprocal performance;

c)      with a direct link between a payment and an identifiable supply.

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

1. Weatherford (C‑527/23): intra-group services and input VAT deduction

In the Weatherford case, a Romanian group entity received intra-group services (e.g. IT, HR, 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.

2. Högkullen (C‑808/23): 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 the VAT qualification. Where necessary, services must be analysed separately to determine the open market value.

3. Arcomet (C‑726/23): TP adjustments 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:

a)     there is a contractual framework;

b)     services are actually supplied;

c)      and 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.

4. Stellantis Portugal (C‑603/24): 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.

5. 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.
3. TP aggregation ≠ VAT aggregation: A single TP charge may consist of multiple supplies for VAT purposes.
4. 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.

Want to know more?

Given the increased focus of tax authorities on the interaction between VAT and TP, multinational groups should proactively assess their existing intercompany arrangements. Our VAT and TP specialists can support you in reviewing your structures and identifying potential VAT risks.

Would you like to assess the VAT impact of your transfer pricing model in light of these developments? Please reach out to your usual Forvis Mazars contact or our Indirect Tax team. We would be pleased to discuss your situation and identify practical next steps.