VAT and TP charges – Four cases pending @ ECJ/CJEU – First case decided on Dec 12, 2024

Recent developments highlight the intersection between VAT and Transfer Pricing (TP) and the need for attention.
EU case law currently offers limited guidance on the relationship between VAT and TP charges.
Three separate cases referred to the CJEU are likely to bring changes in this area.
The cases involve Romanian companies receiving charges from foreign group companies, with disputes arising over the applicability of reverse charged VAT and the necessity of the services for taxable activities.
Another case from Sweden focuses on the application of the open market value within VAT, with disagreements regarding the remuneration charged and the inclusion of certain costs.
The Judgment of the ECJ on the the Case C-527/23 (Weatherford Atlas Gip) will be issued on December 12, 2024.

Soft law sources, such as working papers from the VAT committee and the VAT Expert Group, acknowledge the lack of a consensus on the topic and emphasize the principle of VAT neutrality. However, the application of Article 80 of the EU VAT Directive may impact this principle, and its implementation is optional for Member States.

Source

More details

C-527/23 (Weatherford Atlas Gip) – Questions – Refusal of the right to deduct if services are not used for taxable transactions

Facts & Background:

Arcomet BE negotiated crane supplies with customers through its local affiliate, Arcomet RO.
To align with its transfer pricing (TP) policy, the Arcomet group adjusted the profitability of its operating entities.
Equalization amounts were invoiced based on Arcomet RO’s pre-tax profit or loss and were subject to VAT.
The Romanian tax authorities disputed the VAT recovery.

Question:

The main questions revolve around whether the equalization payments can be considered as consideration for a supply and, if so, whether they are eligible for VAT recovery.

C-726/23 (Arcomet Towercranes) – Questions – Are Transfer Pricing Settlement invoices a Supply of Services?

Facts & Background:

WAGSA received services from a group company and accounted for reverse charge VAT.
The Romanian tax authorities rejected the VAT recovery, arguing that the services lacked a “direct and immediate” link to WAGSA’s outputs and did not provide a direct benefit to WAGSA.

Question:

The main questions revolve around whether the services provided by a group company can be considered as “shareholder” services and whether a business qualifies as a “taxable person acting as such” when incurring such costs.

C-808/23 (Högkullen) – Questions – Taxable amount of services provided by a parent company to its subsidiaries

Facts & Background:

Hogkullen provided management services, with costs amounting to SEK 28 million in 2016, while fees totaled SEK 2.3 million.
The Tax Agency argued that the services were undervalued compared to their open market value and should be adjusted, taking into account capital raising and shareholder costs.
There is no requirement for VAT to follow transfer pricing.

Question:

The main questions revolve around whether “management services” have an open market comparator and whether charges must reflect the parent company’s full cost base.

C-603/24 (Stellantis Portugal) – Questions – Does “supply of services” include contractual vehicle sale price adjustments?

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.

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