VAT treatment of transfer pricing adjustments: Advocate General brings clarity to a complex area

Background

The VAT treatment of transfer pricing (TP) adjustments continues to present difficult challenges, as discussed in our previous newsflash.

Two recent rulings (C-808/23 and C-726/23) of the Court of Justice of the EU (CJEU) addressed this issue but did not provide a principled answer on the VAT consequences of TP adjustments.

Stellantis: Advocate General proposes VAT treatment for common situations

The Advocate General has now addressed this gap by proposing a classification of scenarios and their corresponding VAT treatment (Conclusions, 15/01/2026, ECLI:EU:C:2026:21).

Stellantis Portugal, a distribution subsidiary, purchased vehicles from European manufacturers within the group for resale to Portuguese dealers. The dealers carried out warranty repairs and invoiced the costs to Stellantis Portugal, which then informed the manufacturers of all distribution costs. Under a transfer pricing agreement designed to ensure a minimum profit margin, vehicle prices were adjusted periodically, evidenced by credit or debit notes. The adjustment took into account the distribution costs in question.

The question referred to the CJEU was whether a price adjustment constituted consideration for a separate supply of taxable services rendered by Stellantis Portugal in favour of the manufacturers, comprising distribution and management of the warranty.

The Advocate General firmly rejected this characterisation as it would create a fictitious supply of services. No contract justified such a service, and the assumption would be illogical if Stellantis Portugal’s profits exceeded the target range — implying a service rendered for negative consideration, which VAT law does not recognise.

According to the Advocate General, where the purchase price is contractually variable to allow for TP adjustments, these adjustments constitute a modification of the taxable amount for the supply made.

Only profit adjustments imposed unilaterally and retrospectively by tax authorities solely for profit allocation purposes fall outside the scope of VAT.

Potential impact on intragroup VAT practices

While this opinion is not a binding CJEU judgment, it could significantly influence intragroup VAT practices across the EU.

If the CJEU endorses this approach, businesses will need to carefully review their group transactions against the clear analytical framework proposed by the Advocate General:

• TP adjustments through separate contractually agreed supplies of services are taxable for VAT purposes;
• TP adjustments through variable sale prices relating to specific supplies affect the taxable amount for VAT purposes;
• Unilateral TP adjustments by tax authorities solely for profit allocation purposes fall outside the scope of VAT.