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An analysis by Flick Gocke Schaumburg, Taxand Germany
Following a recent ruling by the European Court of Justice, uncertainty around the VAT treatment of transfer pricing adjustments (TPAs) has returned to the agenda. In this case, the European Court of Justice rejected a blanket approach by tax authorities that sought to treat year-end TPAs as payment for taxable services. Instead, it confirmed that a contractual adjustment to ensure target margins does not automatically constitute consideration for a supply, reinforcing the need to assess each case on its individual facts.
However, the judgment stops short of providing a universal rule. The European Court of Justice emphasised that VAT treatment hinges on whether a payment can be directly linked to a clearly identifiable service, with contractual terms and real-world implementation remaining critical. For businesses, this means TPAs may still fall within the scope of VAT where there is a demonstrable exchange of services.
Tax experts Dr. Christian Engelen and Rainald Vobbe from our German member firm Flick Gocke Schaumburg provide a comprehensive analysis of what this ruling means for business tax.
Transfer pricing adjustments and their implications for indirect taxes.
ECJ decision Stellantis: Transfer pricing adjustments are not necessarily subject to VAT—case-by-case review remains necessary
The tax treatment of transfer price adjustments (TPA) gives rise to uncertainty with income taxes and indirect taxes. While TPAs serve to adjust profits for income tax purposes in accordance with the arm’s length principle, their treatment for indirect tax purposes – particularly in customs and VAT law – has seen considerable legal confusion for years.
It’s in the context of VAT that the question of TPAs’ importance has arisen again thanks to recent decisions by the European Court of Justice (ECJ).
Even without a blanket ‘model solution’ for this issue, the eagerly awaited ECJ judgment of 13 May 2026 in the Stellantis Portugal case (C-603/24) once again highlights the close connection between transfer pricing and VAT. The relevance of TPA for VAT purposes always remains the result of a case-by-case assessment.
Background and what the ECJ decided
The main proceedings concerned the General Motors Group’s Portuguese distribution company, whose legal successor is Stellantis Portugal. Stellantis Portugal acquired vehicles from the Group’s European production companies (the original equipment manufacturers – “OEMs”) and sold them to independent local dealers. Where manufacturing defects were found, the repair costs were passed on to the OEMs via the sales company. Pursuant to a Group agreement, these costs – in addition to other operating costs (personnel, electricity, marketing) – were included in the transfer pricing. At the end of the year, the OEMs issued credit or debit notes to the Portuguese sales company – which were treated neutrally for VAT purposes – in order to ensure operating target margins which had been contractually guaranteed would be achieved. The Portuguese tax authorities conducted an audit and unilaterally reclassified these adjustments as payment for taxable repair services provided by the distribution company to the OEMs and demanded additional VAT.
The ECJ rejected this blanket approach. According to the ECJ, a contractually-agreed TPA to secure a target margin for the sale of goods does not per se constitute consideration for an independent service. The mere fact that certain costs are taken into account within a transfer pricing mechanism is not, in itself, sufficient to justify an exchange of services for VAT purposes.
However, the judgment contains an important caveat: Where there is an independent legal relationship between the companies that relates to specific services in return for payment, the VAT assessment may be different. The ECJ has therefore not established a general VAT privilege for transfer pricing adjustments. Instead, what is decisive is whether the specific payment can be allocated to an identifiable exchange of services. The contractual agreement between the parties and its practical implementation thus continue to be the key point of reference.
How it relates to the Advocate General’s Opinion and to the Arcomet Towercranes case
The scope of this judgment can be seen in particular in contrast to the Opinion of
Advocate General Kokott, as well as earlier judgments:
The VAT treatment of TPAs therefore still cannot be determined in abstract general terms, but depends largely on the specific contractual structure and economic function of the respective adjustment.
Conclusion for practice: When are TPAs irrelevant for VAT purposes?
Perhaps the most significant implication of the ruling is the confirmation of the ECJ’s existing case law, which says that transfer pricing adjustments are not necessarily relevant for VAT purposes. However, the judgment does not state that TPAs are generally outside the scope of VAT law. Instead, the ECJ emphasises that this must be assessed on a case-by-case basis, taking into account the specific contractual relationships, the actual implementation and the direct connection between supply and consideration. However, if there is no such direct connection and a retrospective transfer pricing adjustment (‘true up’) serves exclusively to implement the agreed transfer pricing system or to defer profits for income tax purposes, there is much to suggest that the adjustment is irrelevant for VAT purposes.
According to Stellantis, it must therefore also be examined on a case-by-case basis whether a TPA is irrelevant for VAT purposes, constitutes a change in the tax base or should be qualified as consideration for an independent supply. This means for the business tax function or VAT and transfer pricing practice:
Dr. Christian Engelen (Certified tax advisor, Partner – Flick Gocke Schaumburg, Duesseldorf); Rainald Vobbe (Certified tax advisor, Expert advisor on customs and excise, Partner – Flick Gocke Schaumburg, Bonn)
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