VAT treatment of transfer pricing adjustments

The new Hungarian transfer pricing decree that entered into force this year – which we cover in a separate newsletter series – introduces significant changes to documentation and administrative requirements. As a result, it is becoming practically unavoidable for related parties to comprehensively review their current documentation practices and align them with the new rules. In addition to the new decree, recent judgments of the Court of Justice of the European Union (“CJEU” or “the Court”) also make it necessary for companies to reconsider not only their transfer pricing documentation but also their related tax practices – primarily their VAT treatment. The importance of this topic is further reinforced by the fact that the Hungarian tax authority (NAV) has included the comprehensive review of transactions between related parties as a priority area in its 2026 audit plan.

Relevant CJEU judgments

Recent CJEU judgments have also highlighted that the VAT treatment of transfer pricing adjustments cannot be considered automatically uniform; the appropriate tax treatment depends on a specific analysis of the contractual terms and economic substance of each transaction.

In an earlier case concerning Romania, the CJEU examined the VAT treatment of year-end, profit-based payments made by a subsidiary. In that case, the parent company provided various central services (including management and administrative support) to its subsidiary, and the parties concluded an agreement that fixed the subsidiary’s profitability within a predefined range. If the achieved profit fell above or below this range, the result was adjusted through a year-end transfer pricing adjustment.

The Court found that the central services provided by the parent company delivered real and identifiable benefits to the subsidiary, and that a contractual relationship existed between the parties under which the subsidiary was required to transfer part of its profit to the parent company as consideration. Since, in the case at hand, the subsidiary achieved profits exceeding the predefined threshold, it was obliged under the agreement to transfer the “excess profit” to the parent company.

According to the CJEU, this subsequent, profit-based payment is not merely a transfer pricing correction but constitutes consideration for services actually supplied by the parent company – and therefore qualifies as a transaction subject to VAT. The Court also emphasized that variable, profit-based remuneration does not, in itself, preclude a direct link between the service and the consideration, provided that the pricing mechanism is predetermined, transparent, and clearly linked to the services rendered.

By contrast, in a recent case concerning Portugal – where periodic transfer pricing adjustments were applied between a manufacturing company and its related distribution entity within a product supply chain to ensure that the distributor’s actual profitability matched a predefined margin – the Court held that, as a general rule, the adjustment did not qualify as consideration for a VAT-taxable service. According to the reasoning, only an indirect link existed between the transfer pricing adjustment and the repair costs borne by the distributor. The Court noted that the amount of the adjustment was determined by multiple factors, of which the difference between planned and actual repair costs was only one element. Furthermore, the various costs borne by the distributor had already been taken into account in the original transfer pricing arrangements between the related parties in order to achieve the target profitability. Thus, even if the planned margin had been achieved, it would not have been guaranteed that the manufacturer would fully reimburse repair costs, reinforcing the contingent and difficult-to-quantify nature of the remuneration.

At the same time, in the Portuguese case, the Court only established that, based on the available information, no supply of services for consideration existed in that particular case. The Court did not confirm that the transfer pricing adjustment should qualify as a price adjustment for a supply of goods and referred this question back to the referring court.

These two decisions clearly demonstrate that the CJEU does not provide a single, universally applicable rule for the VAT treatment of transfer pricing adjustments.

In practice, this means that related parties should proactively review:

• their transfer pricing policies and intercompany agreements to assess whether specific TP adjustments are linked to real service–consideration relationships involving mutual obligations, or whether they primarily serve pricing or profit-alignment purposes;
• their invoicing and accounting practices, in particular whether adjustments are treated as standalone service fees or as modifications to the consideration of the original transactions.

If you would like to assess the VAT risks and opportunities associated with your company’s transfer pricing adjustments – especially year-end margin adjustments and other intra-group settlements – and how these align with the new transfer pricing rules, Deloitte’s experts are ready to assist with a detailed review of relevant transactions and contractual structures, as well as the identification of necessary adjustments and practical next steps.