Recent ECJ/General Court VAT Jurisprudence and Implications for EU Compliance (Sept 2025)

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EU VAT Law: Recent Developments and Key Themes (September-October 2025)

This briefing summarizes key themes and ideas emerging from recent EU Court of Justice (ECJ) and General Court (GC) rulings and opinions related to Value Added Tax (VAT). The landscape is complex and constantly evolving, but a few important themes have emerged.

I. Core Themes

Transfer Pricing Adjustments and VAT: A major theme is the increasing scrutiny of VAT implications of transfer pricing adjustments, particularly within multinational corporations. The Arcomet Towercranes case (C-726/23) and related commentary demonstrate the CJEU’s position that transfer pricing adjustments can be subject to VAT if they represent genuine services supplied for consideration under Article 2(1)(c) of the VAT Directive.
Vouchers vs. Discounts in Loyalty Programs: The Lyko case (C-436/24) focuses on clarifying the distinction between vouchers and discounts in loyalty programs. Advocate General (AG) Kokott’s opinion, emphasizes that loyalty points that can only be redeemed with further purchases, without a self-standing obligation to accept them as payment, are more likely to be treated as discounts than vouchers.
VAT Deductions and Input Tax Credits: Several cases address the right to deduct input VAT, particularly when related to VAT-exempt activities or potentially fraudulent transactions. The need for a “direct and immediate link” between input and output transactions is emphasized, and tax authorities have the right to request documentation beyond invoices if it is necessary and proportionate.
Scope of VAT Exemptions: Several cases revolve around the interpretation and scope of various VAT exemptions, such as those for certain postal services, financial transactions, and exports. The emphasis here is on interpreting EU law in a way that prevents abuse and distortion of competition.
Proportionality and Fundamental Rights: The principle of proportionality continues to be a recurring theme, especially concerning penalties for VAT non-compliance and the right to a fair trial. National laws that unduly restrict judicial review or impose disproportionate penalties are likely to be challenged.
Single vs. Multiple Supplies: The VAT treatment of ancillary services to a primary supply is considered, specifically in the context of the hospitality industry in Germany. An AG Opinion was rendered stating that anciliary services should not be required to be taxed at the same rate as the main service.
In-Game Assets: Recent cases also consider the VAT treatment of in-game assets, such as virtual gold. It has been determined that such assets do not qualify for a VAT exemption.
Reemtsma Principle: A key tenet in VAT Law which allows businesses to recover VAT directly from tax authorities when suppliers are unable or unwilling to correct an overcharge.

II. Key Cases and Opinions

Judgments
- C-726/23 (Arcomet Towercranes): This case establishes that transfer pricing adjustments can be subject to VAT if they constitute remuneration for a service. The crucial factor is “the remuneration of intra-group services, supplied by a parent company to its subsidiary and detailed contractually… which corresponds to the part of the operating margin… constitutes the quid pro quo of a service performed for consideration falling within the field of application of Value Added Tax.” Tax authorities can request additional documentation beyond invoices to verify the “reality of the service and its use for the taxable person’s taxed operations,” but these requests must be “necessary and proportionate.” Tax advisors recommend maintaining robust documentation, integrating VAT considerations into transfer pricing policies, and ensuring services provided are clearly defined.
- C-535/24 (Svilosa) – decided on Oct 2, 2025: Acts by a creditor to recover debt without debtor’s mandate aren’t classified as ‘supply of services’. Actions taken by creditors to recover debts, lacking a mandate from debtors, do not fall under the VAT taxable service category.
AG Opinion
- C-436/24 (Lyko Operations): AG Kokott’s opinion suggests that loyalty program points that require a subsequent purchase for redemption are not vouchers but rather discounts. “Discount instruments do not oblige anyone to supply upon presentation of the voucher, but only to reduce the price when a customer undertakes to purchase goods.” This distinction has implications for the timing and calculation of VAT.
- C-409/24, C-410/24, C-411/24 (Germany Ancillary Services): AG Opinion indicates support for Germany’s ability to tax ancillary services like breakfast at the standard rate, even when part of an all-inclusive package. The AG concludes that it is not contrary to EU law for hotels in Germany to tax ancillary services, such as breakfast, separately at the standard VAT rate, and this that the VAT Directive allows for this distinction, regardless of the all-inclusive nature of bookings offered to customers.
- C-472/24 (Žaidimų valiuta): In-game gold is not VAT exempt as currency because it isn’t legal tender and it lacks characteristics of a currency used in legal transactions. However, the AG suggests the margin scheme could be applied analogously to prevent double taxation.
- In ECJ C-121/24 (Vaniz), Advocate General Kokott stated that the mere non-payment of declared VAT by a supplier does not automatically constitute VAT fraud. A customer can only be held liable if they knew or should have known that their supplier was committing fraud or engaging in abusive practices. Liability cannot be imposed on a third party after the liquidation of the original debtor

III. Key Principles and Definitions Reinforced

Direct and Immediate Link: For VAT deduction, a clear and direct link between input and output transactions must be demonstrated.
Proportionality: Penalties and requirements must be proportionate to the offense or objective.
Fiscal Neutrality: The VAT system should not distort competition.
Single Supply: A transaction with multiple elements can be treated as a single supply if those elements are closely linked.
Arm’s Length Principle: Used in transfer pricing, where transactions between related parties should reflect those between independent parties.
Voucher: defined as an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services

IV. Implications for Businesses

Transfer Pricing Documentation: Businesses need robust documentation for intra-group service agreements and transfer pricing policies, going beyond mere invoices. They must demonstrate the reality and use of the service.
Loyalty Program Design: Companies should carefully structure loyalty programs to avoid classification as vouchers if they prefer different VAT treatment.
VAT Compliance Strategies: Businesses need to integrate VAT considerations into transfer pricing policies, intra-group agreements, and documentation practices.
Burden of Proof: Taxpayers bear the burden of proving their entitlement to VAT deductions.
Hotel and Hospitality: Businesses must assess the impact of separate VAT rates on ancillary services.
Gaming: More clarification is needed around taxing in-game assets, in preparation for the final court ruling.

V. Ongoing Questions and Areas for Further Clarification

The exact scope and application of the Arcomet Towercranes ruling and its impact on various transfer pricing scenarios.
The implications of the Lyko case on existing loyalty programs that treat points as vouchers.
Whether digital QR codes can legally replace paper receipts in EU transactions.

Overviews

Judgments (Order)

AG Opinion

Questions

New ECJ/General Court Cases