If you hear the words ‘transfer pricing’ and can only think of direct tax challenges (effective corporate tax rates, allocation of profits across jurisdictions, country-by-country reporting etc), it is time for a mental reset.
In the last year alone, it became abundantly clear that transfer pricing (TP) includes complex indirect tax issues as well.
Two decisions released by the Court of Justice of the European Union (CJEU) in September 2025 and May 2026 highlighted that no multinational organisation should neglect an in-depth VAT review of its TP arrangements, as the risk of under or over accounting for VAT on transfer pricing adjustments runs very deep.
The Stellantis case
The most recent ruling of the CJEU relates to a dispute between the automotive group Stellantis (the maker of Fiat, Maserati, Citroën and Chrysler cars, among others) and the Portuguese tax authority, and concerns a tax audit of TP adjustments dating back to 2006, when the business in Portugal was operating as General Motors Portugal (GMP).
GMP acted as a distributor of motor vehicles manufactured by other group companies based outside Portugal but within the European Union (EU). GMP sold the vehicles to independent Portuguese dealers, which in turn made the final sales to the end customers. Where those vehicles were affected by defects covered by warranties, the dealers incurred repairs then billed to GMP, which eventually recharged the EU group company concerned.
The latter recharge, however, was done as part of an overall TP adjustment mechanism aimed at ensuring that GMP would earn a predetermined profit margin. The repair costs were in fact recharged along with other costs (such as marketing and other overheads) and only to the extent required for GMP to achieve a pre-agreed, TP-compliant profit level.
VAT might need to be adjusted on the price paid for the original supply of goods
The Portuguese tax authority concluded that GMP should have accounted for output tax on the local repair costs ultimately suffered by its EU suppliers. Stellantis argued that those recharges were TP adjustments that did not constitute a consideration for a supply of repair services.
Indirect link…
The CJEU agreed with Stellantis because it established that a taxable supply of repair services can only arise when there is a direct link between the supply of those services and the related adjustments. To create such a link, the court explained that there must be ‘a legal relationship characterised by reciprocal commitments relating to the supply by the acquiring company of services to the selling company and the payment by the selling company of remuneration in respect of those services in the form of such an adjustment’.
In essence, according to the CJEU, the TP agreement in place between GMP and its EU suppliers was not concerned with the provision of repair services from a VAT perspective, and the payments were not remunerations for taxable supplies, hence there was no VAT to account for.
Great, you may think: so TP adjustments of this kind are not subject to VAT. Not quite, as this judgment did not rule out the possibility that VAT might need to be adjusted on the price paid for the original supply of goods (in this case, cars).
Furthermore, in September 2025, the CJEU established in a separate landmark case that, subject to certain conditions, transfer pricing transactions can indeed represent taxable supplies of services and be subject to VAT.
An assessment of a multinational’s TP arrangements should not overlook the EU VAT angle
…And direct link
The case in question relates to a dispute between Arcomet Towercranes (a Romanian subsidiary of a Belgian multinational organisation) and the Romanian tax authority.
There appear to be two main similarities with the Stellantis case: the TP adjustments between Arcomet Belgium and Arcomet Romania were driven by profit-margin considerations, and the core of the issue was whether a direct link between the services contractually chargeable by Arcomet Belgium to Arcomet Romania and the amounts paid could be established.
However, unlike the Stellantis case, the CJEU concluded that because Arcomet Belgium ‘undertook to provide a certain number of commercial services and to bear the main economic risks associated with Arcomet Romania’s activity as an operating company’, there was that necessary direct link, and the payments were considerations subject to VAT (under the reverse-charge mechanism in this case).
The key lesson to learn from these two rulings is this: an assessment of a multinational’s TP arrangements should not overlook the EU VAT angle and must be carried out on a case-by-case basis, considering the specific contractual arrangements between the group companies concerned and the potential existence of a direct link between charges (or recharges) and payments.
