Background

The VAT treatment of transfer pricing (TP) adjustments has long been a contentious and unsettled issue for multinational groups. This is also reflected in the series of cases brought before the ECJ concerning the interaction between TP mechanisms and VAT. Where previous cases concerned TP adjustments relating to services, the Stellantis case concerns TP adjustments relating to the supply of goods.

Stellantis case (C‑603/24)

The case concerns an international group that is involved in the distribution of motor vehicles. Stellantis Portugal functions as a domestic distribution company. It acquires the vehicles from an affiliated manufacturing company and subsequently sells the vehicles to (third-party) dealers. The dealer sells the vehicles to end-customers.

Based on intra-group TP policy, Stellantis Portugal is required to realise a certain minimum operating margin for the distribution activities. That margin is based on a ‘resale minus’ approach and by considering the external vehicle sales prices and distribution costs (including certain repair costs and other operating expenses). To bring the actual operating margin of Stellantis Portugal in line with the agreed operating margin under the intra-group transfer pricing policy, the manufacturing company periodically issues debit and/or credit invoices for its supplies to Stellantis Portugal (depending on whether the underlying vehicle prices paid by Stellantis Portugal should be decreased or increased). In the litigated year, credit notes were issued by the manufacturing company, which resulted in a payment by the manufacturing company to Stellantis Portugal. No VAT is included on the credit invoices as parties considered the transfer pricing adjustments as payments outside the scope of VAT.

The Portuguese court asked the ECJ whether the TP adjustment constituted a consideration for a service rendered by Stellantis Portugal to the manufacturing company. Based on the facts presented to it, the ECJ found that the contractual relationship between the parties primarily concerned the sale of vehicles and the determination of transfer prices to ensure a target profit margin and did not establish a separate obligation for the distributor to provide services to the manufacturer. It therefore ruled that TP adjustments in the context of these intra-group supplies of goods did not constitute the consideration for a separate supply of services for VAT purposes. However, the ECJ leaves the possibility open that a taxable service could be identified if a contractual relationship existed wherein the TP adjustments could be directly linked to distinct services rendered.

The ECJ further indicated that it is for the national court to assess whether, in this case, the TP adjustments constitute a subsequent adjustment of the price of the initial supply of goods. On the face of it, it seemed clear that – based on the facts as described by the Advocate General in her opinion – the TP adjustment should be qualified as an adjustment of the sales price. The ECJ remains neutral in this respect and leaves this up to the Portuguese court to assess.

VAT treatment of TP – grey area remains

In our view, the ruling does not bring much more clarity regarding TP adjustments in case of a supply of goods. In general, all options seem to be on the table and TP adjustments are either outside the scope of VAT, an adjustment of the consideration for a previous supply of goods or services, or a consideration for a separate supply. The ruling does confirm that the relevant agreements are essential to determine the VAT treatment.

TP adjustments may give rise to additional compliance obligations for multinational enterprises, such as the need to issue credit notes or adjust VAT returns and could result in increased VAT leakage for businesses operating in (partially) VAT exempt sectors. Businesses are therefore advised to carefully analyse the VAT implications of their group’s TP policies, as well as the VAT treatment of TP adjustments applied in practice.