Transfer Pricing and VAT: Why Economic Substance Matters More Than Ever

Transfer Pricing Overview: Transfer Pricing governs pricing among related entities in multinational groups, ensuring intra-group transactions reflect arm’s length prices to allocate profits fairly for corporate tax purposes based on functions, risks, and assets.
VAT Implications of Adjustments: Transfer Pricing adjustments may affect VAT if they involve actual payments linked to specific supplies. The taxable amount for VAT is determined by actual consideration, but adjustments solely for profit alignment without payment changes generally do not trigger VAT.
CJEU Case and Future Considerations: The pending Arcomet Towercranes case examines the VAT implications of intra-group payments under Transfer Pricing. The outcome emphasizes the need for careful analysis of contractual agreements and economic substance to determine VAT liability, necessitating vigilance from businesses in aligning Transfer Pricing with VAT requirements.