EU: VAT treatment of transfer pricing adjustments (CJEU judgment)

The Court of Justice of the European Union (CJEU) on May 13, 2026, issued its judgment in Stellantis Portugal, S.A. (Case C‑603/24), addressing the VAT treatment of year‑end transfer pricing adjustments between affiliated entities. The CJEU held that transfer pricing adjustments designed to ensure a distributor achieves a target profit margin do not, in themselves, constitute consideration for a provision of services.

Facts

A Portuguese taxpayer operated as the national sales company for a car manufacturer in 2006, buying vehicles from the group’s European original equipment manufacturers (OEMs) and reselling them to independent Portuguese dealers, who then sold these to final customers. When vehicles had manufacturing defects, or required roadside-assistance-related repairs, customers took them to the dealers. The dealers carried out the repairs and invoiced the taxpayer. The taxpayer treated these repair costs as part of its overall distribution costs and reported them to the OEMs along with their other operating costs (such as staff, electricity, and marketing). Under a 2004 intra-group agreement on transfer pricing, the OEMs set initial transfer prices for vehicles, parts, and accessories by working backwards from the expected resale prices to dealers, deducting a target distribution cost and a pre-agreed profit margin for each national sales company. At the end of each period, the parties adjusted the transfer prices via credit or debit notes, so the national sales company actually earned that pre-agreed margin, and the OEMs recorded these adjustments in their accounts.

The Portuguese tax authority audited the taxpayer’s 2006 accounts and concluded that the taxpayer had effectively provided taxable services to the OEMs within Portugal, based on sourcing rules applicable to the provision of services at the time. The tax authority found that the taxpayer initially paid the dealers for the repairs but then effectively passed those repair costs back to the OEMs through the year-end transfer price adjustments. On that basis, the tax authority treated the taxpayer as providing taxable repair services in Portugal to the OEMs and assessed VAT and interest.

Question referred to the CJEU

Does a contractually agreed year‑end price adjustment, intended to ensure a minimum profit margin and documented through accounting adjustments, fall within the concept of a “supply of services for consideration” under the VAT Directive?

CJEU decision

The CJEU concluded that such transfer pricing adjustments do not constitute consideration for a supply of services unless they are linked to reciprocal performance involving a clearly identifiable service. 

Under EU VAT rules, a service is taxable only when a direct link exists between a specific service and the payment received, and when a legal relationship creates reciprocal obligations: the provider must commit to perform an identifiable service, and the recipient must pay in return for that service. In this case, the only legal relationship identified stemmed from the 2004 transfer pricing agreement, whose purpose was to set and adjust vehicle prices so that the taxpayer achieved a pre-determined profit margin on resale. The agreement did not state that the taxpayer had a contractual obligation to repair vehicles for the OEMs in return for remuneration, nor did the case file provide other evidence of such a service relationship.

Even if the referring court were to find some form of service relationship based on additional evidence, it still had to determine whether the transfer price adjustments constituted actual, quantifiable, and non‑optional consideration for identifiable repair services. The adjustments took into account a broad range of the taxpayer’s distribution costs (staff, electricity, marketing, and repair costs) and could result in either credit notes or debit notes. Because the mechanism merely aimed to ensure that the taxpayer reached a target profit margin, the taxpayer had no guarantee that it would recover all its repair costs from the OEMs. This structure indicated at most an indirect connection between any repair activity and the transfer price adjustments, which generally breaks the direct link required for a transaction to fall within VAT as a service rendered for consideration.

The CJEU further rejected the argument that the taxpayer acted “on behalf of” the OEMs in a way that would make it a participant in the dealers’ repair services to the OEMs. The case record did not show that the taxpayer acted as an intermediary or as an agent for the OEMs in that context.

Finally, the CJEU observed that if the referring court decides that the transfer price adjustments do not represent payment for repair services from the taxpayer to the OEMs, but instead represent a later change to the purchase price of the vehicles, then the national tax authorities must evaluate how that price change affects the VAT taxable amount for the OEMs’ sale of vehicles to the taxpayer.

KPMG observation

While the decision confirms that year‑end transfer pricing adjustments do not automatically give rise to a service subject to VAT, it also reinforces that outcomes will depend heavily on whether a direct link to identifiable services can be demonstrated. In this respect, the Stellantis decision should be distinguished from the Arcomet Towercranes decision (Case C-726/23). Both apply the same basic VAT tests (legal relationship, reciprocal obligations, direct link between service and payment), but reach different outcomes because the facts and contracts differ.

In Arcomet, the parent company had a detailed written contract that clearly set out specific intra‑group services (strategic, commercial, financial, fleet, and risk‑bearing functions) that the Belgian headquarter performed for Romanian subsidiary. The contract expressly stated that the Romanian subsidiary would pay an amount equal to the part of its operating margin above 2.74% as remuneration for those activities, calculated using the OECD transfer pricing method. The CJEU therefore treated the year‑end settlement as the agreed consideration for identified services and held that it fell within the scope of VAT as a taxable service transaction.

In Stellantis, the agreement aimed primarily to ensure that the Portuguese taxpayer achieved a pre‑defined profit margin on vehicle resale. Because the contract did not create a clear legal relationship in which the distributor provided distinct services to the manufacturers for a defined fee, and because the adjustment did not directly track any specific service, the CJEU indicated that such adjustments normally function as price corrections on the original sale of goods rather than consideration for services.

In addition, even if there is no distinct service, the CJEU indicated in Stellantis that the transfer pricing adjustment may lead to an adjustment of the taxable base of the initial transaction (i.e., the sale of the cars), which in itself may have VAT consequences (e.g., VAT invoicing, VAT return reporting, and European sales list reporting).

Therefore, the VAT treatment of transfer pricing arrangements remains fact driven as the CJEU has unfortunately not followed the nonbinding opinion of its Advocate General to take a bolder position of transfer pricing adjustments and clearly state that some adjustments are outside the scope of VAT.

Given the evolving case law in this area, businesses can expect continued scrutiny from tax authorities and need to proactively assess the VAT implications of inter-company transactions and related transfer pricing adjustments on a case-by-case basis. Multinational groups therefore need to revisit their intercompany arrangements to make certain that:

• The nature of payments is clearly articulated (price adjustment vs. service remuneration),
• Transfer pricing policies and VAT positions are internally consistent, and
• Supporting documentation robustly reflects the economic substance of the transactions.
   

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Bridget Hill-Zayat | bhillzayat@kpmg.com