CJEU ruling on the VAT valuation of intragroup services

At a glance

On 3 July 2025, the CJEU clarified rules applicable to the VAT valuation of intragroup services in its Högkullen case.

A closer look

Background

Högkullen AB, a Swedish holding company, provides various services to its subsidiaries; these include financing, real-estate management, IT, and personnel management services. However, for all these services only one single fee is charged.

The subsidiaries are active in the real estate sector and could only deduct part of the input VAT they incur on their costs. However, Högkullen was able to deduct all the input VAT on the costs incurred to provide these services.

The Swedish VAT authorities challenged the taxable amount, meaning the total on which VAT is calculated and which is typically the fee charged, for these services.

They argue that the consideration for Högkullen’ s services is below the open market value, asserting that the taxable amount should be based on the company’s total expenditure rather than the actual consideration received from subsidiaries.

This open market value is a concept foreseen by articles 72 and 80 of the VAT Directive (Directive - 2006/112 - EN - VAT directive - EUR-Lex) implemented in articles 28.3 and 32 of the Luxembourg VAT law.  It permits VAT authorities to reassess the price of supply of goods or services between related parties when at least one of the parties does not have a full right to VAT deduction.

In principle, the open market value is the price that would be paid within the same country for similar goods or services from a third-party provider at the same marketing stage.

As the Swedish VAT authorities consider the services provided to be unique, they defend the default rule which posits that costs should be incurred by the provider.

Advocate General Juliane Kokott challenges the position

On 6 March 2025, the Advocate General of the Court of Justice of the European Union (“CJEU” or “the Court”), Ms. Juliane Kokott, opined that Högkullen’ s management services should not automatically be considered as unique services because similar services could be provided by third parties. She thus suggested that the open market value should be determined based on comparable market prices for similar services, rather than solely on the holding company’s total expenditures. In its ruling on 3 July 2025, the Court confirmed this position.

Other very interesting considerations of Ms. Kokott have not been considered by the Court, however they worth been mentioned.

Ms. Kokott opposes the Swedish VAT authorities’ view which defends that shareholder costs must be included in the expenditures and considered when determining the open market value. These shareholder costs typically include costs of future acquisitions and account closures as well as those costs incurred in audits, general meetings, raising capital, issuing new shares, and getting listed on the stock exchange. Instead, she considers these costs to bear no relation to the services provided to the subsidiaries.

The Advocate General also considers that those costs incurred by Högkullen AB that are not subject to VAT should not be included in the taxable amount because the aim of the open market value is to fight risk of VAT evasion and fraud, and there is no such risk when the costs are VAT exempt. This is important, because half of Högkullen costs is not subject to VAT. This is typically the case of salary costs.

Ms. Kokott has also examined the case of certain expenditures subject to input tax that are amortised only over a longer period, using the construction of a datacenter that could provide IT services to the subsidiaries as an example. Such investment results in high costs during the year of construction (with a high VAT burden) which the holding company could then neutralize by deducting input VAT.

In this example, she argues that including the full amount of such investment costs in the same year that they are paid, as suggested by the Swedish VAT authorities, would not reflect the economic reality. This is because the valuation of the service provided in that year would be heavily influenced by those investments. On the contrary, that expenditure must be allocated also to the services supplied in future years.

All this would suggest that when assessing the value of Högkullen services, and thus determining the value of amount VAT due, the Swedish VAT authorities should have considered the value of similar services provided by third parties and not all the costs it incurred, including those of shareholders.

Despite the fact that the Court does not always adopt the opinions of the Advocate General, they are absolutely worthy of keeping them in mind.

The Deloitte Luxembourg Indirect Tax team remains at your disposal to discuss the potential impacts on your organization.