VAT and Transfer Pricing – Four cases @ ECJ/CJEU decided

• 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): The ECJ ruled that VAT deductions cannot be denied for services used in taxable transactions even if shared with other group companies, additional documentation may be required for VAT deductions, and parent-subsidiary services should be assessed individually rather than as a single supply for VAT purposes.
  • 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): ECJ decided that a transfer price adjustment does not constitute a VATable service if there’s no direct link to a supply of goods or services.
• 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.

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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

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Briefing document & Podcast: C-726/23 (Arcomet Towercranes) – VAT and Transfer Pricing Adjustments on on Intra-Group Services – VATupdate

Facts and Background

• The case involves SC Arcomet Towercranes SRL, a subsidiary of the Arcomet Group, which faced a tax inspection concerning additional VAT assessments related to invoices issued by its parent company, Arcomet Belgium, for intra-group services.
• The invoices were issued under a contract stipulating that remuneration would align with the subsidiary’s operating profit margin, specifically addressing how transfer pricing rules apply within the group.
• The Romanian tax authority denied Arcomet Romania’s right to deduct input VAT, claiming that the company failed to demonstrate that the invoiced services were supplied and necessary for its taxable activities.
• The Curtea de Apel Bucureşti (Court of Appeal, Bucharest) referred questions to the ECJ regarding the nature of the services provided and the documentation required to substantiate VAT deductions under EU law.
• The case raises critical issues related to intra-group transactions, the definition of “supply of services for consideration” under VAT law, and the evidentiary requirements for VAT deductions.

Questions to the Court

• Is the amount invoiced by a parent company to its subsidiary, calculated in accordance with the OECD Guidelines and related to the operating profit margin, considered a payment for a service that falls within the scope of VAT under Article 2(1)(c) of the VAT Directive?
• If the above is affirmative, do Articles 168 and 178 of the VAT Directive prevent tax authorities from requiring additional documents beyond the invoice to verify the existence of the services and their use for taxable transactions?

Decision

• The ECJ ruled that the remuneration for intra-group services, calculated according to OECD Guidelines and linked to the subsidiary’s operating profit margin, constitutes consideration for a supply of services subject to VAT under Article 2(1)(c) of the VAT Directive.
• The Court also determined that the tax authority may require a taxable person to submit documents other than the invoice to prove the existence of the services and their use for taxable transactions, as long as such requests are necessary and proportionate.

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

Summary 

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ECJ C-603/24 (Stellantis Portugal) – Judgment – Transfer price adjustment not VATable service without direct link. – VATupdate

• Facts: Stellantis Portugal (legal successor to Opel Portugal/GMP), as a national sales company within the General Motors group, purchased vehicles from OEM manufacturers. These vehicles were resold to independent dealers who then sold to final customers. When vehicles required repairs under warranty or due to production defects, dealers repaired them and invoiced GMP. GMP reported these repair costs, along with other operational costs, to the OEMs. An internal 2004 agreement stipulated that transfer prices for vehicles sold by OEMs to GMP would be adjusted to ensure GMP achieved a predetermined profit margin, factoring in these various costs. These adjustments were evidenced by credit or debit notes from OEMs to GMP.
• Issues: The Portuguese Tax and Customs Authority considered these adjustments to be remuneration for vehicle repair services provided by GMP to the OEMs, thus subject to VAT. GMP contested this, arguing the adjustments were merely part of the transfer price mechanism to guarantee a profit margin, not payment for a service. The core legal question was whether such a transfer price adjustment constitutes “consideration for a supply of services” under Article 2(1) of the Sixth VAT Directive.
• Decision: The Court ruled that a transfer pricing adjustment, even if it accounts for repair costs and aims to guarantee a profit margin, does not constitute consideration for a “supply of services effected for consideration” for VAT purposes, unless there is a clear legal relationship between the companies involving reciprocal commitments for the supply of services by the acquiring company (GMP) to the selling company (OEMs) and remuneration for those specific services in the form of the adjustment, thus establishing a direct link.
• Argumentation for Decision:
  • Direct Link Criterion: For a supply of services to be “for consideration” and subject to VAT, there must be a direct link between the service provided and the consideration received, based on a legal relationship of reciprocal exchange.
  • Lack of Explicit Service Obligation: The Court found no evidence in the 2004 agreement or other submitted facts indicating a legal obligation for GMP to provide repair services to the OEMs for remuneration. The agreement’s purpose was profit margin guarantee via price adjustment, not payment for specific services.
  • Indeterminacy of Remuneration: The adjustments were calculated based on various costs (repair, personnel, electricity, marketing) to reach a target profit margin, meaning the repair costs were only one factor among many. The outcome could be a credit or debit, and GMP was not guaranteed full reimbursement of specific costs once the profit margin was met. This lack of certainty and direct correlation between specific repair services and the adjustment amount weakens the “direct link” required for VAT.
  • Intervention Argument Dismissed: The Portuguese government’s argument that GMP acted as an intermediary for repair services on behalf of OEMs (under Article 6(4) of the Sixth VAT Directive) was dismissed due to insufficient evidence.
• Conclusion/Guidance to National Court: The national court must determine if a legal relationship exists, beyond the profit margin agreement, where GMP was explicitly obligated to provide repair services to the OEMs for which the adjustments served as direct remuneration. If not, the adjustments are not consideration for a service. The Court also noted that if the adjustments are viewed as a post-acquisition price modification, national authorities would need to assess its impact on the VAT taxable base for the initial vehicle supply (under Article 11 of the Sixth VAT Directive).

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Remember

• VAT Expert Group on Transfer Pricing Adjustments – Paper/Opinion issued on April 18, 2018

See also

• Roadtrip through ECJ VAT Cases – Focus on Taxable Amount between Related Parties (incl. Transfer Pricing) (Art. 80)
• John Gruson
• Deloitte

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