- 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): AG opinion supports VAT application on TP adjustments for intra-group services, allowing tax authorities to require documentation beyond invoices to substantiate VAT deductions.
- C-808/23 (Högkullen): AG suggests management services from holding companies can be valued based on market comparisons, not solely on expenditures.
- 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.
More details
- 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
- Parties Involved: SC Arcomet Towercranes SRL (Arcomet Romania) is part of the Arcomet group, which operates in the crane hire sector. Arcomet Service NV Belgique (Arcomet Belgium) provides administrative services to its subsidiaries, including Arcomet Romania.
- Intra-Group Transactions: Between 2011 and 2013, Arcomet Romania received three invoices from Arcomet Belgium for services rendered. These invoices were related to a transfer pricing agreement, which ensured that Arcomet Belgium would maintain a specific operating profit margin.
- Tax Inspection and VAT Dispute: Following a tax inspection, the Romanian tax authorities denied Arcomet Romania’s right to deduct VAT on these invoices, arguing that the company failed to prove that the services were necessary for its taxable transactions. Consequently, additional VAT, interest, and penalties were imposed.
- Legal Action: Arcomet Romania contested this decision, leading to a referral to the Curtea de Apel Bucureşti (Court of Appeal, Bucharest) for a preliminary ruling on the VAT implications of the transactions.
Questions Referred to the ECJ:
- First Question: Is the amount invoiced by a parent company to its associated company for the adjustment of profit based on OECD transfer pricing guidelines considered a payment for a service subject to VAT under Article 2(1)(c) of the VAT Directive?
- Second Question: If the first question is affirmative, can the tax authorities require documentation beyond the invoice to prove that the services purchased were utilized for taxable transactions as stipulated in Articles 168 and 178 of the VAT Directive?
Advocate General (AG) Opinion:
- VAT Treatment of Intra-Group Services: The AG opined that the remuneration calculated according to the transaction-based net margin method outlined by the OECD guidelines should be regarded as consideration for a supply of services. Therefore, it falls within the scope of VAT.
- Case-by-Case Assessment: The AG emphasized that the assessment of whether the services provided are subject to VAT must be made on a case-by-case basis, considering the direct link between the services rendered and the remuneration received.
- Supporting Documentation: Regarding the second question, the AG stated that tax authorities could require additional documentation to substantiate the right to deduct VAT, provided that such requirements adhere to the principle of proportionality. This means that the documentation should be necessary and relevant to demonstrate the existence and use of the services in question for taxable transactions.
See also
- Context of the Case: Högkullen AB, a Swedish holding company, provides various management services to its subsidiaries, generating a VAT-related dispute with the Swedish tax authority regarding the taxable amount for these services.
- Disputed Tax Calculations: The tax authority argues that the consideration for Högkullen’s services is below the open market value, asserting that the taxable amount should be based on the company’s total expenditure rather than the actual consideration received from subsidiaries.
- Legal Framework: The case involves the interpretation of Articles 72 and 80 of the VAT Directive, which pertain to the determination of open market value and the conditions under which Member States can revalue the taxable amount to prevent tax evasion.
- Preliminary Ruling Questions: The Supreme Administrative Court of Sweden seeks guidance on whether it is appropriate to classify Högkullen’s services as unique and whether all company expenditures, including capital-raising costs, should be included in determining the taxable amount for VAT purposes.
- AG’s Opinion: The Advocate General opines that Högkullen’s management services should not automatically be considered unique services, suggesting that the open market value can be determined based on comparable market prices for similar services, rather than solely on the holding company’s total expenditures.
Facts & Background:
- Corporate Structure and Operations: Stellantis Portugal, S.A. (formerly General Motors Portugal, Lda) operates as a National Sales Company (NSC), purchasing vehicles from European manufacturers and reselling them to independent dealers in Portugal. The company is part of a broader economic group involved in the manufacturing and distribution of vehicles and parts.
- Business Transactions and Cost Adjustments: GMP incurs costs related to vehicle repairs and other operational expenses, which it communicates to European manufacturers. Adjustments to the vehicle sale prices are made based on these costs, documented through credit or debit notes.
- Tax Inspection and Dispute: A tax inspection for the 2006 financial year revealed that GMP initially bears after-sales costs before passing them to the Original Equipment Manufacturers (OEMs). The tax authority contended that these transactions were subject to VAT in Portugal, leading to a supplementary VAT assessment of EUR 1,504,215.49.
- Legal Proceedings: GMP contested the VAT assessment, but the Tribunal Central Administrativo Sul upheld the tax authority’s decision. The case has since been escalated to the Supremo Tribunal Administrativo, highlighting the ongoing dispute over transfer pricing adjustments and their implications for VAT compliance within the corporate structure.
Question:
- The question is whether the concept of “supply of services effected for consideration” includes an adjustment of the sale price of vehicles as provided in a contract to achieve a minimum profit margin, documented by credit or debit notes issued by European manufacturers.
Remember
See also
- Roadtrip through ECJ VAT Cases – Focus on Taxable Amount between Related Parties (incl. Transfer Pricing) (Art. 80)
- John Gruson
- Deloitte
- Join the Linkedin Group on ECJ VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
