VAT deduction on intragroup services: CJEU rules favourably in first decision in series of four on VAT and intragroup transactions

On 12 December 2024, the CJEU has ruled in the first case (of four) on VAT on intragroup transactions (Weatherford Atlas Gip, C-527/23). The CJEU ruled that national legislation cannot refuse VAT deductions on the grounds that services were simultaneously supplied to other group companies or deemed unnecessary or not appropriate, provided the services are used for the taxable person's own taxable transactions.

Background and facts of the case

Weatherford Atlas Gip SA (hereafter ‘Weatherford’), part of the Weatherford group which provides oil services worldwide, has taken over the company Foserco SA who purchased administrative services (IT services, HR resources, marketing, bookkeeping, etc.) from several companies within the group. The takeover prompted a verification by the Romanian tax authorities who refused the deduction of VAT on the administrative services as it had not been shown that they were used for taxable transactions. 

More particularly, the authorities deemed the link between the services and the taxable transactions was not demonstrated as the necessity or the appropriateness of the services was not established. This – subjective – assessment of the tax authorities was derived from the fact that the services were provided to the benefit of other group entities, and to the benefit of the group as a whole.

Consideration of the case

The CJEU confirms that the right to deduct VAT is a fundamental principle of the VAT system, which cannot be limited if services are used for taxable transactions. The CJEU reiterates the main principles relating to VAT deduction and refers back to the national courts to decide based on those principles. 

It is up to the national judges to assess whether (I) the administrative services are transactions subject to VAT, (II) there is a direct link between these services and the consideration paid by the taxpayer, (III) the company in question is a taxpayer within the meaning of the VAT Directive and (IV) these services have been used by the taxpayer for its own taxable transactions at a later stage. 

National tax authorities and the national judicial authorities should take into account all the circumstances in which the transactions have taken place and should consider only the transactions that are objectively related to the taxable activity of the taxpayer.

The CJEU does clarify that, for such decision, it is irrelevant that services are provided simultaneously to other companies within the group. Also the question whether the purchase of the administrative services was necessary or appropriate is deemed irrelevant by the CJEU, since the VAT Directive does not make the exercise of the right of deduction subject to a criterion of the economic profitability of the input transaction.

Relevance of the decision 

The CJEU confirms the basic principles of VAT deduction and applies these to intragroup services, dismissing some of the more subjective arguments sometimes invoked by tax authorities to deny the VAT recovery for these services, such as necessity or appropriateness of the services. 

The Court at the same time insists on the need to establish that all conditions for VAT recovery be met, and re-emphasises that the burden of proof lays with the taxpayer, making it clear that taxpayers should not be complacent where it comes to VAT deduction.

Broader context of VAT, TP and intragroup transactions

This is the first judgement of the CJEU on the interaction between VAT and transfer pricing in a series of decisions which will hopefully provide more guidance on VAT, TP and intragroup services.

Prejudicial questions have been raised in three other cases (Arcomet Towercranes (C-726/23),  Högkullen (C-808/23) and Stellantis Portugal (C-603/24) dealing with the interplay between VAT and TP. The Arcomet case relates to guaranteed profit margin supported by TP documentation, and the VAT treatment of TP adjustments. Högkullen questions whether shareholders’ costs that are not included in the cost plus should nevertheless be included in the taxable amount where this needs to be determined at market value for VAT. In Stellantis, the VAT treatment of very specific TP adjustments to achieve a minimum profit margin is examined. The dates for judgements in these cases are not scheduled yet. 

Up until now, only (limited) guidance in relation to the interaction between VAT and TP exists, such as the working papers published by the VAT committee (Working paper no 923) and the VAT Expert Group (Paper no 071 REV2) years ago.