VAT and Transfer Pricing – Four recent cases @ ECJ/CJEU – 2 cases decided, 1 AG Opinion issued

Intersection of VAT and Transfer Pricing: Recent ECJ/CJEU cases highlight the complex relationship between VAT and Transfer Pricing (TP), with limited EU case law guidance and ongoing debates around VAT neutrality and Article 80 of the VAT Directive.
Key Cases and Opinions:
- C-527/23 (Weatherford Atlas Gip): The ECJ upheld the right to VAT deductions for group services, emphasizing that services used for taxable transactions can’t be denied deductions, even if shared with other group companies.
- C-726/23 (Arcomet Towercranes): AG opinion supports VAT application on TP adjustments for intra-group services, allowing tax authorities to require documentation beyond invoices to substantiate VAT deductions.
- C-808/23 (Högkullen): The Court ruled that parent-subsidiary services cannot always be classified as a single supply, allowing for individual assessment of VAT obligations under EU law.
- C-603/24 (Stellantis Portugal): The case questions whether contractual vehicle price adjustments, documented by credit or debit notes, fall under “supply of services” for VAT purposes.
Implications for Multinational Groups: These developments necessitate careful documentation and assessment of intragroup transactions, ensuring alignment with VAT and TP guidelines to maintain compliance and optimize VAT deductions.

More details

C-527/23 (Weatherford Atlas Gip) – Judgment – Refusal of the right to deduct if services are not used for taxable transactions

Case Background: The case concerns the interpretation of Article 168 of Directive 2006/112/EC on VAT, with Weatherford Atlas Gip SA challenging the Romanian tax authority’s refusal to allow VAT deductions for administrative services acquired within the same group of companies.
VAT Deduction Refusal: The Romanian tax authority refused the VAT deduction, arguing that the services were not necessary for Weatherford Atlas Gip’s taxable activities and were also provided to other group companies.
Court’s Key Considerations: The Court emphasized that the right to deduct VAT is a fundamental principle of the VAT system, which cannot be limited if services are used for taxable transactions. It is not relevant if services are simultaneously provided to other companies within the group.
Assessment of Evidence: The Court highlighted that it is the taxable person’s responsibility to prove eligibility for VAT deductions, and the national courts must assess all facts and circumstances to determine the link between services acquired and taxable transactions.
Ruling: The Court ruled that national legislation or practice cannot refuse VAT deductions on the grounds that services were simultaneously supplied to other group companies or deemed unnecessary, provided the services are used for the taxable person’s own taxable transactions

See also

Briefing document: ECJ C-527/23 (Weatherford Atlas Gip) – VAT Deduction for Group Services – VATupdate

ECJ C-726/23 (Arcomet Towercranes) – AG Opinion – Transfer Pricing Adjustment for intra-group services subject to VAT; documentation required

Briefing Document: Advocate General’s Opinion in Case C-726/23 (SC Arcomet): VAT, Transfer Pricing and Intra-Group Services

Parties Involved: SC Arcomet Towercranes SRL (Arcomet Romania) is part of the Arcomet group, which operates in the crane hire sector. Arcomet Service NV Belgique (Arcomet Belgium) provides administrative services to its subsidiaries, including Arcomet Romania.
Intra-Group Transactions: Between 2011 and 2013, Arcomet Romania received three invoices from Arcomet Belgium for services rendered. These invoices were related to a transfer pricing agreement, which ensured that Arcomet Belgium would maintain a specific operating profit margin.
Tax Inspection and VAT Dispute: Following a tax inspection, the Romanian tax authorities denied Arcomet Romania’s right to deduct VAT on these invoices, arguing that the company failed to prove that the services were necessary for its taxable transactions. Consequently, additional VAT, interest, and penalties were imposed.
Legal Action: Arcomet Romania contested this decision, leading to a referral to the Curtea de Apel Bucureşti (Court of Appeal, Bucharest) for a preliminary ruling on the VAT implications of the transactions.

Questions Referred to the ECJ:

First Question: Is the amount invoiced by a parent company to its associated company for the adjustment of profit based on OECD transfer pricing guidelines considered a payment for a service subject to VAT under Article 2(1)(c) of the VAT Directive?
Second Question: If the first question is affirmative, can the tax authorities require documentation beyond the invoice to prove that the services purchased were utilized for taxable transactions as stipulated in Articles 168 and 178 of the VAT Directive?

Advocate General (AG) Opinion:

VAT Treatment of Intra-Group Services: The AG opined that the remuneration calculated according to the transaction-based net margin method outlined by the OECD guidelines should be regarded as consideration for a supply of services. Therefore, it falls within the scope of VAT.
Case-by-Case Assessment: The AG emphasized that the assessment of whether the services provided are subject to VAT must be made on a case-by-case basis, considering the direct link between the services rendered and the remuneration received.
Supporting Documentation: Regarding the second question, the AG stated that tax authorities could require additional documentation to substantiate the right to deduct VAT, provided that such requirements adhere to the principle of proportionality. This means that the documentation should be necessary and relevant to demonstrate the existence and use of the services in question for taxable transactions.

See also

Briefing Document: Advocate General’s Opinion in Case C-726/23 (SC Arcomet): VAT, Transfer Pricing and Intra-Group Services

ECJ C-808/23 (Högkullen) – Judgment – Parent-subsidiary services cannot always be treated as a single supply

Summary

Background of the Case: The case involves a preliminary ruling requested by the Högsta förvaltningsdomstolen (Supreme Administrative Court, Sweden) regarding the interpretation of Articles 72 and 80 of the VAT Directive (2006/112/EC). The dispute is between Högkullen AB, a parent company providing various services to its subsidiaries, and the Swedish tax authority (Skatteverket), focusing on how to determine the normal value of those services for VAT purposes.
Questions Presented: The court was asked to clarify whether the services provided by Högkullen to its subsidiaries could be considered a single supply for VAT purposes, which would affect how the normal value of those services is determined. Specifically, it questioned if the tax authorities could always regard these services as single supplies that prevent the application of the open market value comparison method outlined in Article 72.
Court’s Decision on the First Question: The court ruled that Articles 72 and 80 of the VAT Directive preclude tax authorities from categorically treating the services supplied by a parent company to its subsidiaries as a single supply. This means that the open market value of those services can still be determined using the comparative method specified in Article 72, despite the services being provided in the context of active management.
Implication of the Ruling: The ruling emphasizes that services offered by a parent company to its subsidiaries should be assessed individually rather than collectively. This decision upholds the principle that businesses should not be constrained to an artificial classification that could obscure the true nature of the services and their corresponding values for VAT purposes.
Conclusion and Costs: The court did not address the second question regarding the determination of normal value based on unique service characteristics, as the first question’s outcome rendered it unnecessary. The decision on costs incurred during the proceedings was left to the national court.

C-603/24 (Stellantis Portugal) – Questions – Does “supply of services” include contractual vehicle sale price adjustments?

Facts & Background:

Corporate Structure and Operations: Stellantis Portugal, S.A. (formerly General Motors Portugal, Lda) operates as a National Sales Company (NSC), purchasing vehicles from European manufacturers and reselling them to independent dealers in Portugal. The company is part of a broader economic group involved in the manufacturing and distribution of vehicles and parts.
Business Transactions and Cost Adjustments: GMP incurs costs related to vehicle repairs and other operational expenses, which it communicates to European manufacturers. Adjustments to the vehicle sale prices are made based on these costs, documented through credit or debit notes.
Tax Inspection and Dispute: A tax inspection for the 2006 financial year revealed that GMP initially bears after-sales costs before passing them to the Original Equipment Manufacturers (OEMs). The tax authority contended that these transactions were subject to VAT in Portugal, leading to a supplementary VAT assessment of EUR 1,504,215.49.
Legal Proceedings: GMP contested the VAT assessment, but the Tribunal Central Administrativo Sul upheld the tax authority’s decision. The case has since been escalated to the Supremo Tribunal Administrativo, highlighting the ongoing dispute over transfer pricing adjustments and their implications for VAT compliance within the corporate structure.

Question:

The question is whether the concept of “supply of services effected for consideration” includes an adjustment of the sale price of vehicles as provided in a contract to achieve a minimum profit margin, documented by credit or debit notes issued by European manufacturers.

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