So why was the CJEU so firm that the adjustment was consideration for a supply in Arcomet and not consideration for a supply in Stellantis? It is all a matter of contract. There was no contract for Stellantis to supply repair services to the local manufacturer – so the adjustment could not be consideration for that supply. The contract between them was for the purchase of vehicles by Stellantis from the manufacturer. On the other hand, there was a contract between Arcomet Belgium and its Romanian subsidiary and the adjustment could be linked to what was done by the parent under that contract and so become payment for that supply. It is that direct link, or the absence of one, that is key here. There is also a ‘follow the money’ angle in that it was possible, depending on the results of a year, that Stellantis might have wound up paying more for the cars than it had originally, rather than getting a rebate from the manufacturer via the TP adjustment. In other words, the adjustment could have gone the other way. In that case, if the tax authority had been correct, it would have been supplying repair services for negative consideration and that is simply not a concept that VAT law recognises.
People may have tended previously to view TP adjustments as a mere movement of money, a nothing for VAT purposes. But these two cases may represent a bit of a gear shift. Unless the adjustment is no more than a unilateral profit adjustment demanded by the tax authority, that has no link to any supply in any direction, it should not be assumed it has no VAT impact. It could be consideration for a separate supply. It could adjust the value of a supply already made, up or down.
It is generally advisable for entities within a multinational group to ensure TP policies are backed by appropriate contractual terms and year-end TP adjustments are an important aspect of ensuring those contracts are respected in practice. It is hard to conceive of many situations where a TP adjustment invoiced in accordance with a contract would meet the criteria for the paying entity to claim a corporate tax deduction, yet would have no direct link to a supply for VAT purposes.
Of course, when TP adjustments are made in the tax return of one party only, to increase taxable profits or reduce allowable losses, this may well be a VAT nothing. But the objective of most TP policies is to avoid that very situation by delivering an appropriate TP outcome in both parties’ financial statements.
Both these cases were released after the end of our EU exit transition period and the UK is free to ignore them. But nonetheless, we would have expected some comment from HMRC. There has been nothing. VATVAL16000 has not been updated – it still says a TP adjustment is not itself consideration but is an indication that transactions may not have been at arm’s length values and may point to an undervaluation. Following the introduction of the UK-UK transfer pricing exemption, VAT rules may become increasingly important as regards the value of domestic supplies between connected parties for whom VAT is a cost.
Based on these cases, you could say that VAT no longer takes a back seat where TP is concerned. This continues to be an area to monitor.
