CJEU Narrows VAT Exposure for Transfer Pricing Adjustments in Stellantis Portugal Case

Transfer pricing is one of the most complex areas of international taxation. It concerns the pricing of transactions between companies within the same multinational group, including the supply of goods, the provision of services such as management or legal support, financing arrangements, and the use or transfer of intellectual property across different jurisdictions. Tax authorities require these transactions to comply with the “arm’s length principle”, meaning that intra-group prices must reflect those that would have been agreed between independent parties in comparable circumstances.

Transfer pricing is often complex because it requires multinational groups to price related-party transactions as if they were between independent parties, despite the fact that no real market comparison usually exists and outcomes must be reconstructed using judgement, benchmarks, and assumptions. As a result, tax administrations may challenge whether a transfer price accurately reflects economic reality, leading to adjustments intended to increase or decrease taxable profits in a particular country.

While transfer pricing is traditionally associated with direct taxation and corporate income tax, it can also create significant consequences for VAT purposes. A transfer pricing adjustment may affect the taxable amount for a supply of goods or services if the adjustment is considered linked to a specific transaction. This raises difficult legal and practical questions. Taxpayers and tax authorities must determine whether the adjustment represents additional consideration for a taxable supply, whether a VAT invoice should be corrected, whether output VAT or input VAT recovery must be adjusted accordingly, or whether the adjustment is outside of the scope of VAT.

These issues become even more complicated in cross-border situations within the European Union, where VAT neutrality and harmonisation under the EU VAT Directive must be balanced against the economic realities addressed by transfer pricing rules. This tension has increasingly led to litigation before the Court of Justice of the European Union (CJEU), with recent cases seeking to clarify the relationship between transfer pricing adjustments and VAT treatment.

Background of the Case

Case (C-603/24) involving Stellantis Portugal S.A (“Stellantis”) concerned how transfer pricing adjustments relating to intra-group supplies of goods (vehicle distribution activities) affect the determination of the taxable amount between Stellantis and the other group companies in the supply chain.  Stellantis operated as a distributor/reseller of vehicles in Portugal and received/paid amounts during the year based on transfer pricing policy.  At the end of year, a transfer pricing adjustment was made to align Stellantis’ profit margin in order to achieve a target operating margin, based on the group’s transfer pricing policy and intercompany agreement.

The Portuguese tax authority argued that this adjustment should be treated as additional consideration for taxable supplies (i.e., subject to VAT adjustment), because it related to transactions which were already subject to VAT. As such, it raised VAT assessments.

Stellantis contested this decision and instead argued that the adjustments were purely transfer pricing profit adjustments and not consideration for any identifiable supply of goods or services. The company claimed that many such adjustments are intended solely to achieve compliance with transfer pricing rules for corporate tax purposes and do not alter the legal or commercial terms of specific transactions. Therefore, they should not automatically result in VAT adjustments.

The dispute was escalated to the CJEU for judgement on whether year-end transfer pricing adjustments should automatically be treated as consideration for VAT purposes.

This case is particularly important because EU Member States have historically taken different approaches to this issue. Some tax authorities have viewed transfer pricing adjustments as outside the scope of VAT unless directly tied to a specific supply, while others have taken a broader approach and sought to impose VAT consequences on such adjustments. The differing approaches adopted across Member States created uncertainty for multinational businesses operating across the EU.

The CJEU’s Judgment and Reasoning

In its ruling, the CJEU focused on the fundamental VAT principle that VAT applies only where there is a direct link between a supply and the consideration received, based primarily on Articles 2(1)(a) and (c), 73  and 90 of the EU VAT Directive. The Court emphasised that not every financial adjustment between related parties automatically constitutes payment for a taxable transaction.

The Court examined whether the transfer pricing adjustment was sufficiently connected to identifiable supplies of goods or services, and stressed that a transfer pricing adjustment must be analysed in its economic and contractual context. Where a correction merely serves to align overall profitability with the arm’s length principle, without modifying the price actually payable for specific supplies, the adjustment may fall outside the scope of VAT.

Therefore the CJEU rejected the idea that transfer pricing adjustments should automatically trigger VAT consequences solely because they affect the financial relationship between related entities. Instead, the Court confirmed that the decisive factor is whether the adjustment represents additional consideration for a particular taxable supply.

The ruling builds on established CJEU jurisprudence regarding the concepts of consideration and the taxable amount, including Tolsma (C-16/93) and Apple and Pear Development Council (C-102/86), which confirm that VAT requires a direct and identifiable link between a supply and the payment received. If a transfer pricing adjustment lacks reciprocity between the supply and the payment received, it may not satisfy this requirement.

At the same time, the Court acknowledged that some transfer pricing adjustments can indeed impact VAT. If an adjustment clearly relates to the price of identifiable supplies already made between group companies, then the taxable amount may need to be corrected accordingly. The assessment therefore depends heavily on the factual and contractual structure of the arrangement.

The Courts’ reasoning behind it’s decision was largely driven by legal certainty and the principle of VAT neutrality. It acknowledged that automatically treating all transfer pricing adjustments as VAT-relevant could create disproportionate administrative burdens and inconsistent outcomes across Member States, and so it sought to avoid a situation where purely accounting or profitability-based corrections would generate VAT liabilities disconnected from actual taxable supplies.

Conclusion

The CJEU’s decision that the adjustments were not directly linked to any individual sale or identifiable service represents an important clarification in the ongoing debate over the relationship between transfer pricing and VAT. The ruling enforces the principle that transfer pricing adjustments cannot automatically be treated as consideration for VAT purposes. Instead, businesses and tax authorities must carefully assess whether a direct link exists between the adjustment and specific taxable supplies.

Practical aspects for your business:

The CJEU confirmed that a transfer pricing adjustment does not automatically create a VAT adjustment. So how can you protect your business from risk where the adjustments are made within your company group which are not linked to specific transactions?

Firstly, check what the adjustment actually relates to. Is it tied to a specific supply, or is it simply a year-end profit adjustment? Only adjustments linked to identifiable goods or services are likely to have VAT implications.

Make sure your intercompany agreements are clear on what is being charged and why. VAT follows the legal and commercial substance, not just the transfer pricing outcome.

Document the purpose of any adjustment at the time it is made. You will need this if tax authorities challenge the VAT treatment during an audit.

Be consistent in how you invoice and account for adjustments. Mixed treatment creates risk.

If you would like advice on how to handle transfer pricing adjustments within your group, feel free to contact us on our website, and one of our experienced consultants will be happy to support you.