Explore the most recent CJEU Advocate General opinions on valuing intragroup services and handling TP adjustments for VAT purposes.
Background
The ambiguous relationship between VAT and transfer pricing, particularly regarding the VAT treatment of transfer pricing adjustments (TP Adjustments) is well-established, as discussed in our previous newsflash. The lack of binding guidance has long created uncertainty for businesses, despite commentary from the EU Commission VAT Committee and the VAT Expert Group.
Two recent referrals to the Court of Justice of the European Union (CJEU), C-808/23 and C-726/23, have brought this issue into focus. The Advocate General (AG) opinions in these cases were published on 6 March 2025 and 3 April 2025 respectively. The opinions provide critical insights into the VAT implications of TP Adjustments, setting the stage for the CJEU's forthcoming judgments. We outline below the key takeaways from these opinions and their potential impact on businesses.
Advocate General opinions: open market value and TP Adjustments assupply of services
C-808/23
A Swedish parent company provided services to its subsidiaries but excluded certain specific costs from its cost base in accordance with the OECD Transfer Pricing Guidelines. The Swedish VAT authorities disagreed, arguing that these costs should have been reflected in the consideration for the services provided to the subsidiaries.
The questions referred to the CJEU focus on interpreting the concept of open market value as defined in Article 80 of Council Directive 2006/112/EC and the relationship between VAT regulations and transfer pricing calculation methods.
AG Kokott's opinion
Bundle of services
To assess the open market value, the AG opined that the first step is to determine whether the parent company provides a single service or multiple distinct services. AG Kokott stated that the company offers separate services, each accessible individually, and that, despite a single price based on the cost-plus method, these services must be evaluated separately for VAT purposes. The Swedish court must therefore determine if a comparable supply and price exist for each service, based on the purchase price of similar services (instead of a cost-plus methodology).
Determination of the open market value
AG Kokott further opined that a de facto blanket inclusion of all expenditure incurred by the holding companyduring the year for the purpose of determining the open market value would lead to incorrect results and not reflect economic reality. Instead, only expenses subject to VAT should be included since the intent of Article 80 is to prevent tax avoidance (e.g. VAT exempt/out of scope costs would in any case not be subject to VAT) and a separate assessment of the services provided by the parent company and its expenditures must be made (i.e. relationship between expenditures and services provided, amortisation etc).
C-726/23
A Romanian crane rental company, part of an international group, received invoices from its Belgian parent for TP Adjustments. The Romanian company applied VAT under the reverse charge mechanism, treating it as payment for services. However, the Romanian tax authorities denied the VAT deduction, arguing the adjustments were unrelated to taxable transactions.
The CJEU was asked whether TP Adjustments qualify as a service for VAT purposes and what evidence was required to establish their link with the economic activity carried out in order to justify the input VAT deduction right.
AG de la Tour's opinion
Supply of services for VAT purposes
AG de la Tour opined that, in the case at hand, the remuneration for intragroup services received by the parent company and computed using a TP method (TNMM) constituted the consideration for a supply of services for VAT purposes based on the following conditions being met:
- Legal relationship – the legal relationship was established and materialised by the agreement concluded between the parent company and the Romanian subsidiary.
- Identifiable services – according to the AG, the tasks as described in the agreement, i.e. parent company negotiation of contracts and provision of additional services to its Romanian subsidiary for the purpose of its economic activity, were sufficiently identifiable.
- Direct link between the services performed and the remuneration received – the AG opined that, while the remuneration itself was not determined, the calculation method was clearly established in the agreement and did not leave any room for arbitrariness. As such, the remuneration was determinable, and a direct link could be established between the fee payable and the underlying services provided.
VAT deduction right
Finally, AG de la Tour reiterated the basic conditions of the input VAT deduction right and corresponding burden of proof on the taxable persons claiming it. In this context, the AG stated that the principle of proportionality does not preclude requiring proof that the substantive conditions have been met beyond the mere production of an invoice, since the objective characteristics of the transactions examined must be taken into account.
Next steps: CJEU decisions expected to impact intragroup VAT practices
These recent AG opinions, although not binding on the CJEU, provide crucial insights into the VAT treatment of TP Adjustments, particularly regarding determination of the open market value and the conditions under which these adjustments qualify as a supply of services for VAT purposes. These cases highlight the need for businesses to carefully assess their intragroup transactions and ensure that services are properly delineated, a direct link can be established between the remuneration and the services provided, and sufficient documentation is maintained to support VAT deductions.
The CJEU is now preparing to issue its judgments and the outcome is expected to significantly influence VAT practices for affiliated companies. Arendt's VAT and Transfer Pricing teams are closely monitoring these developments to help businesses anticipate and adapt to any required changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
