VAT on intragroup services

The Court of Justice of the European Union (“CJEU” or the “Court”) has released key decisions on VAT for intragroup services and transfer pricing. These rulings impact all businesses, particularly PSFs with limited VAT deduction.
 

Deduction of VAT on intragroup services

The first case, C-527/23 Weatherford Atlas Grip (“WAG”), relates to the right to deduct input VAT for intragroup services and was decided on 12 December 2024.

WAG, a Romanian services company with full VAT deduction rights, purchases IT, HR and consulting services from other Weatherford group entities established outside Romania. Despite WAG paying the Romanian VAT under the reverse charge procedure, the Romanian VAT authorities denied the corresponding VAT deduction.

Their challenge was twofold: they cited a lack of a demonstrated link to WAG’s taxable activity and argued that the evidence regarding the nature, provider, period and necessity of the services was insufficient.  Furthermore, they contended that since these services were also provided to other group companies, they were not exclusively for WAG’s benefit.

Firstly, the Court clarified that there must be a direct link between the costs and the taxable activity. When this link is absent, the costs must form part of the taxable person’s general expenses and be reflected in the price of their taxable supplies. This must be assessed based on the “objective content” of the transactions, prioritizing the “actual use” of the goods and services and the “exclusive reason” for the purchase.

Crucially, the Court stated that providing administrative services simultaneously to several group recipients does not, in itself, preclude the right of deduction. The decisive factor is whether the costs borne by the taxable person actually correspond to the services received for their own taxed output transactions.

The Court also rejected the argument of the Romanian VAT authorities that VAT deductions are subject to a test of economic profitability or necessity. The principle of fiscal neutrality ensures that all economic activities subject to VAT are taxed neutrally, irrespective of their commercial purpose or final results.

Regarding the “burden of proof”, the Court reiterated that this responsibility lies with the taxable person requesting the deduction. While tax authorities may request specific evidence—such as service agreements, cost allocation methodologies, and proof of actual use and benefit—the final evaluation of this evidence remains the responsibility of the national court.

In conclusion, deducting input VAT on intragroup services follows the same logic as for third-party purchases. However, experience indicates that the burden of proof is often more complex because the VAT authorities tend to apply higher scrutiny. Therefore, it is prudent for intragroup services to ensure robust evidence exists—including service agreements and deliverables—that clearly shows how services were rendered and utilized. While a transfer pricing study provides a strong foundation, it should not be the only evidence relied upon to secure a position.

Valuation of intragroup services

The second case, C-808/23 Högkullen AB, addresses the valuation of services and the determination of the VAT taxable amount. This decision was issued on 3 July 2025.

Högkullen AB, a Swedish holding company, provides diverse services to its subsidiaries, including financing, IT and personnel management (similar to those in the WAG case). For all these services, only one single fee is charged. While the subsidiaries are active in the real estate sector and have limited VAT deduction rights, Högkullen was able to deduct the full input VAT on the costs incurred to provide these services.

The Swedish VAT authorities challenged the taxable amount, asserting that the remuneration fell below the open market value. This concept, established in Articles 72 and 80 of the VAT Directive (and implemented in Articles 28.3 and 32 of the Luxembourg VAT law), permits VAT authorities to reassess prices between related parties when one party lacks full VAT deduction rights. Two methods can be used:

• The “comparative” method: The open market value is defined as 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.
• The “costs” method: This serves as the default approach when no comparable exists. In this instance, the value is determined by the full cost of providing the service (the sum of the costs to the taxable person).

The Swedish VAT authorities argued the services were unique, necessitating the default costs method. However, the CJEU rejected this, ruling that Högkullen’s management services are not automatically unique since similar services are available from third parties. The Court suggested determining open market value based on comparable market prices rather than on total expenditures alone.

This is a significant development, as it should prevent tax authorities from taxing shareholder costs that, under transfer pricing principles, should generally not be recharged.

The Court’s decision aligns with the opinion of Advocate General Ms. Juliane Kokott, delivered on 6 March 2025. While the Court did not address all her points, they remain highly relevant:

• Shareholder costs: Ms. Kokott argued that costs related to audits, general meetings, or raising capital bear no relation to the services provided to the subsidiaries and should be excluded from the valuation.
• Non-VAT costs: The Advocate General noted that costs not subject to VAT (such as salary costs) should not be included in the taxable amount, as the open market value rule aims to prevent VAT evasion and fraud, which are not risks for exempt costs.
• Investment amortization: Ms. Kokott argued that including the full investment costs of a project (e.g., a data center) in a single year would distort economic reality. Instead, expenditures should be allocated over the years the service is actually supplied.

The Court’s refusal to automatically default to the costs method provides clarity. However, for highly tailored services common in the financial services sector and for PSFs, finding market comparables remains difficult. In such instances, the costs method may still apply.

Given the lack of specific guidelines in the VAT Directive or in Luxembourg law, it could be seen as regrettable that the Court did not explicitly confirm the Advocate General’s developments regarding the costs method. Maintaining robust documentation that distinguishes service-related costs from shareholder or non-VAT expenditures remains essential to secure positions.
 

VAT treatment of transfer pricing adjustment

Regarding the VAT treatment of a transfer pricing adjustment, it is necessary to refer to two key cases of the EU Court of Justice: the Arcomet case and the Stellantis Portugal case.
 

The Arcomet case

In C-726/23 Arcomet Towercranes STL (“Arcomet”), the CJEU examined the VAT treatment of a transfer pricing adjustment made for corporate tax purposes.

The case involved Arcomet Romania and Arcomet Belgium. Under their 2012 contract, the Belgian entity performs various functions for Arcomet Romania, primarily sourcing suppliers and negotiating the terms of purchase of cranes and other equipment from third-party suppliers. Critically, Arcomet Belgium assumes the main economic risks for the Romanian activity, namely the purchase of products from third-party suppliers and their subsequent rental or sale to customers.

Service pricing is grounded in a transfer pricing study aligned with the Organisation for Economic Co-operation and Development’s (OECD) principles. This ensures that rates between related parties match those of independent parties, achieving the “arm’s length” standard. Performing such a study aims to safeguard against tax authority adjustments and their associated penalties—including fines, late payment interest and criminal sanctions—by ensuring full compliance with established regulations.

In this instance, the study established that Arcomet Romania’s commercial margin should remain between -0.71% and +2.74% of its turnover. This is known as the transactional net margin method (TNMM).

After Arcomet Romania exceeded the 2.74% margin, Arcomet Belgium issued three invoices to adjust the results. Arcomet Romania paid VAT on the first two invoices under the reverse charge mechanism, while treating the third invoice as out of scope.

Although its sales and rental activities were fully taxable—granting a theoretical right to full deduction—the Romanian tax administration refused the deduction for all three invoices. While collecting the VAT paid on the first two invoices and demanding the VAT payment on the third, the authorities argued that Arcomet Romania had failed to demonstrate the necessity of these services for its taxable operations.

The Romanian court asked the CJEU to determine whether such a transfer pricing adjustment constitutes a provision of services subject to VAT.

On 3 April 2025, the Advocate General, Mr. J. Richard de la Tour, noted that a service is provided for consideration as long as a legal relationship exists with a direct link between the service and payment. He argued that a contract does not require a fixed price; instead, providing the specific criteria or elements to determine that price is sufficient. Consequently, he found that a service was indeed provided by Arcomet Belgium to Arcomet Romania, a status unaffected by the specific nature of the remuneration.

However, the Advocate General’s conclusions left it unclear whether the transfer pricing adjustment is a “new” service or an adjustment of the “original” price. This uncertainty grew when the Advocate General addressed the reverse situation—where Arcomet Romania would receive payment for a negative margin from Arcomet Belgium—suggesting this may constitute a “reverse” service from the subsidiary to the parent. This seems to contradict the essence of transfer pricing rules, which are designed to distribute risk and profit, not to create a separate flow of services.

While this distinction between a “new” service and an adjustment of the “original” price may seem theoretical, its practical impact is significant. For example, a PSF invoices a related bank €100 for exempt financial services. If the VAT authorities determine the price should have been €120, the treatment of that additional €20 is critical:

• If the €20 is an adjustment of the initial fee, there is no impact on the VAT due to the tax authorities.¹ 
• If it is a “new” service, it will, in principle, be subject to VAT. This would likely affect a bank with limited deduction rights, making part of that VAT an additional cost.

On 4 September 2025, the CJEU ruled that remuneration for intragroup services, calculated via standard OECD methods (like TNMM), constitutes payment for services. Since this payment included the portion of the operating margin exceeding the 2.74% threshold, it falls within the scope of VAT. Unfortunately, unlike the Advocate General, the Court did not elaborate on the consequences of a “downward” adjustment in which the parent pays the subsidiary.

While the Court’s decision clarifies the VAT application to the specific transactions in this case, it is not exhaustive enough to cover all transfer pricing adjustment methods. Since Arcomet determined the service price based on TNMM, it remains unclear whether the same VAT analysis would apply to other transfer pricing methods. These include comparable uncontrolled price (CUP), resale price, transactional profit split, and cost plus.

This lack of a “one-size-fits-all” solution and the resulting need for a case-by-case approach have already been highlighted in a European Commission working paper on the possible implications of transfer pricing.²

Shortly after the decision, the Commission commented on it in Working Paper No. 1124³. The document reiterates that adjustments made under the TNMM are subject to VAT where they are linked to actual services. Although the working paper offers limited additional practical guidance, its rapid publication underscores the importance attached to the issue.

The Stellantis Portugal case

On 15 January 2026, the CJUE’s Advocate General, Ms. Kokott, delivered her opinion in the “Stellantis Portugal” case (C-603/24)1.

Stellantis Portugal, S.A. is part of the Stellantis group and acts, in the group’s terminology, as a “national sales company.” It purchases vehicles from the original equipment manufacturers and resells them to independent dealers in Portugal.

The company reimburses independent dealers for costs incurred in connection with vehicle warranties granted to customers. The dealers invoice these amounts to Stellantis Portugal, charging VAT. Stellantis Portugal then passes the costs on to the manufacturers, as documented by credit or debit notes issued by the manufacturers.

The Portuguese VAT authorities took the position that these payments constituted remuneration for services supplied by the manufacturers to Stellantis Portugal S.A., and were therefore subject to Portuguese VAT.  The company disagreed, and the dispute was ultimately brought before the Portuguese Supreme Administrative Court (Supremo Tribunal Administrativo). That court referred a preliminary question to the CJEU, asking whether the concept of a “supply of services effected for consideration” encompasses a contractual adjustment of the vehicle sale price intended to achieve a minimum profit margin.

After extensive analysis, the Advocate General has concluded that the VAT treatment of profit adjustments made for income tax purposes depends on their nature and manner in which they are implemented. With that in mind, the Advocate General distinguished between several scenarios:

• Separate services: “Where the adjustment of profits is made by means of separate supplies of services (…) for consideration (creation of input and output) and there are not only fictitious supplies of services, those separate supplies of services for consideration constitute taxable transactions (…).”
• Unilateral tax authority adjustments: “Where the adjustment of profits is made unilaterally and subsequently by the tax authority solely for the purposes of an appropriate allocation of profits between two tax-levying States, that is not, in principle, relevant for the purposes of VAT law.”
• Contractual price adjustments: “On the other hand, where, as in the present case, the adjustment of profits is made by means of a sale price which has been provided for precisely for that purpose and agreed to be variable and which relates to a specific supply of goods, that constitutes a reduction in the taxable amount (…) or a further part of the taxable amount (…). Since the change in the taxable amount of a supply relates solely to the consideration, it cannot itself constitute a ‘supply of services for consideration’ (…).”

Ms. Kokott opinions contain several noteworthy developments, in particular:

• The clear distinction between a transfer pricing adjustment imposed by income tax authorities, which should not have VAT consequences, and a transfer pricing adjustment agreed between the parties that may affect the VAT taxable amount; and,
• The confirmation that a change in the taxable amount of a supply does not, in itself, constitute a separate supply of services for VAT purposes.

This reasoning directly contradicts the position taken by the Portuguese tax authorities which treated transfer pricing adjustments to the sale price of goods as distinct supplies of services.

The conclusions of the Advocate General are not binding on the Court. A final judgment is therefore still awaited. Based on the Court’s usual timelines—typically up to six months from the delivery of the opinion—a decision may be expected before the summer. This leaves affected businesses time to assess the potential implications for their intragroup transactions.

 

¹ However, this adjustment may affect the VAT deduction right of the provider.

² European Commission, Working Paper 923: Possible implications of transfer pricing, February 2017.

³  European Commission, Working Paper 1114: Case C-726/23 Arcomet Towercranes – lessons learned, October 2025.