Comments on ECJ C-808/23: Intra-Group Services Must Be Assessed Individually for VAT Purposes

Judgment Overview: The CJEU ruled in Case C-808/23 that intra-group services provided by a parent company to subsidiaries do not automatically constitute a single supply for VAT purposes and must be evaluated separately.
Normal Value Determination: The court clarified that the normal value of services, which should reflect what an independent party would pay, cannot be assumed to be a single entity if comparable services exist in the market. Each service must be priced based on its specific costs and market conditions.
Implications for Tax Authorities: The ruling emphasizes that tax authorities cannot universally categorize intra-group services as a single supply, thus requiring a detailed examination of each service to determine the appropriate VAT treatment based on Articles 72 and 80 of the VAT Directive.

European Court further clarifies interplay between VAT and transfer pricing

CJEU Ruling Clarification: The European Court of Justice (CJEU) provided clarity on how intra-group transfer pricing arrangements should be treated for VAT, stating that the open market value for services provided by a holding company to its subsidiary must reflect arm’s length principles and should be assessed individually rather than as a single supply.
Impact of Open Market Value: Member States can opt to apply the open market value for intra-group supplies, particularly when related parties perform supplies below this value. The CJEU ruling indicates that each distinct service provided should have its own comparable market price, rather than relying on the total cost incurred by the parent company.
Documentation Importance: Businesses are urged to maintain comprehensive documentation that demonstrates the arm’s length nature of their intra-group transactions and the corresponding VAT treatment, especially in jurisdictions where open market value rules are applied, to ensure compliance and mitigate potential VAT leakage.