What is it all about?
TP adjustments in VAT are a topic that has been coming back for many years and is still not settled.
The discussion continues, and the financial stakes can be very high.
Recently, two important EU-level decisions were issued: Arcomet (C-726/23) and Stellantis (C-603/24 – Opinion of AG Kokott).
In both cases, tax authorities assessed VAT arrears — first the Romanian authorities, and then the Portuguese ones.
In both cases, the amounts involved were measured in millions of euros.
The core problem remains the same: how should TP adjustments be treated for VAT purposes?
Are they:
- remuneration for a service,
- a correction of the price of goods,
- or merely a neutral profit allocation with no VAT consequences?
Arcomet (C-726/23).
In this case, related companies entered into a TP agreement with a defined target margin and an annual equalisation invoicing mechanism.
When the margin exceeded the agreed level, debit invoices were issued. The Court held that, under such a structure, an VAT-taxable service was supplied.
What mattered was the existence of a legal relationship, clearly defined obligations on both sides, and remuneration determined in advance, which reflected the value of the activities performed.
Stellantis (C-603/24 – Opinion of AG Kokott).
Here, the mechanism concerned adjustments to car sales prices made after the settlement period in line with a TP algorithm.
The Advocate General clearly stated that profit equalisation, as such, does not constitute a service.
A TP adjustment understood as a profit allocation does not create VAT.
In this case, however, VAT does arise, because the adjustment constitutes a correction of the price of specific goods, which leads to a change in the VAT taxable base rather than to the supply of a separate service.
So what is the conclusion, and what next?
TP adjustments remain dangerous from a VAT perspective.
Either the company issuing invoices between related parties has VAT arrears because it failed to charge VAT when it should have, or the recipient has VAT arrears because it deducted VAT when it should not have.
After the Court’s case law, there are ways to manage this risk.
In many cases, it is sufficient to introduce simple contractual provisions (or other forms of intercompany arrangements) and to properly link the goods supplied with specific cash flows, for example through annexes to invoices.
If this issue exists in your structure, we will be happy to discuss it.
