VAT and Transfer Pricing – Four recent cases @ ECJ/CJEU – 3 cases decided, 1 AG Opinion

• 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): 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.

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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) – AG Opinion – VAT Adjustments in Intra-Group Transfer Pricing Not Separate Supplies – VATupdate

• Case Overview: The ECJ’s Advocate General (AG) provided an opinion on case C-603/24 (Stellantis Portugal), addressing whether VAT adjustments in intra-group transfer pricing for vehicle sales should be considered separate taxable supplies of services under VAT law.
• Legal Distinction: The AG emphasized that VAT law differentiates between profit adjustments for income tax purposes and adjustments relevant for VAT, noting that adjustments based solely on income tax criteria do not qualify as taxable transactions under VAT regulations.
• Price Adjustments as Modifications: The AG concluded that adjustments to the sale price of vehicles, which reflect warranty and operating costs, should not be treated as separate supplies but rather as modifications to the taxable amount of the original supply.
• Focus on Economic Transactions: The opinion highlighted that VAT law is concerned with actual economic transactions rather than theoretical adjustments, stating that price adjustments documented appropriately affect the taxable amount without constituting new taxable transactions.
• Recommendations for Clarity: The AG suggested that the Court clarify that intra-group transfer pricing adjustments should only be classified as separate supplies when they involve distinct services for consideration, promoting consistency in VAT application across EU member states.

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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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