Must VAT be charged on corrections or price adjustments as a result of transfer pricing policies? This question features in several cases currently before the Court of Justice of the European Union (CJEU).
Today, Advocate-General Kokott delivered her Opinion in the Stellantis Portugal case. The A-G concludes that no VAT correction is required if there is no separate supply of services due to the absence of a contract. This does not preclude a possible adjustment or reduction of the taxable amount, with VAT implications.
The CJEU has yet to reach a verdict on the matter. In this article, our experts discuss the A-G’s opinion and the possible outcomes of the final judgement.
VAT on contractual price adjustments?
The Stellantis Portugal case concerns whether a contractually agreed upon price adjustment to a sales price as a result of a transfer pricing correction is regarded as taxable for VAT purposes.
Previously, the CJEU held in the Arcomet-case that this is the case if, in short, there is a direct link between the service supplied and the consideration received. This is assessed on the basis of several specific criteria.
In Arcomet however, the question was not about price adjustments as such, but the VAT treatment of intra‑group services that were recharged via price adjustments using the TNMM method.
Three possible outcomes
As the factual and circumstances differ between Stellantis Portugal and Arcomet (and other somewhat comparable cases such as Weatherford Atlas and Högkullen AB), it is not certain what conclusion the CJEU will reach. In short, there are three possible outcomes:
Taxable: price adjustments are regarded as a supply of services.
This type of transfer pricing adjustment would be taxable under European VAT rules. This would be in line with the Arcomet judgment.Not taxable: price adjustments are treated as internal corrections.
These transfer pricing adjustments would not be taxable, as no (separate) taxable supply is recognised for VAT purposes.Hybrid assessment: each individual adjustment must be assessed to determine whether the conditions for taxability are met.
Factors such as contractual arrangements and invoices play a role.
AG’s conclusion: not taxable
In her Opinion, AG Kokott advises the CJEU to rule that option 2 is correct. Shortly put, there is no sperate supply of services. The adjustment is not based on a contract.
But the adjustment of the pricing may still be relevant for VAT purposes if it pertains to s specific supply of goods. In such cases, there may be an adjustment or reduction of the taxable amount, with VAT implications.
The CJEU is expected to issue its judgment in the Stellantis Portugal case in the near future. It is worth noting that the CJEU is not obligated to follow the AG’s Opinion. Therefore, the practical implications remain to be seen.
Keep a close eye on VAT and transfer pricing
The VAT consequences of transfer pricing and corrections continue to evolve. Would you like to know more about this case, or do you have questions about VAT and transfer pricing? Please feel free to contact us. Our VAT & Customs Advisory experts and our Transfer Pricing specialists can provide further guidance.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
