The Court of Justice of the European Union ("CJEU") has handed down its highly anticipated judgment in Case C-603/24 (Stellantis Portugal). This follows the Opinion of Advocate General Juliane Kokott, which we discussed in our previous article ("Further reflections on the assessment of transfer pricing adjustments and VAT – Advocate General's Opinion in Case C-603/24 Stellantis Portugal | Grant Thornton").
Although the judgment was eagerly awaited by the professional community, the decision itself is relatively brief and minimalist. The CJEU focused solely on answering the reference for a preliminary ruling: whether the concept of a "supply of services effected for consideration" covers a contractual adjustment to the sale price of vehicles intended to ensure a distributor achieves a minimum profit margin.
The CJEU concluded that a transfer pricing adjustment for motor vehicles which is:
- duly provided for in an agreement concluded between companies within the same group, aimed at ensuring a predetermined profit margin for the distributor upon the subsequent resale of the vehicles;
- documented by a credit note or a debit note (request for payment) addressed to the distributor by the selling company;
- calculated, in particular, taking into account the costs incurred by the distributor for repairs to those vehicles carried out by third parties,
does not constitute consideration for a supply of services.
The CJEU deduced—leaving final verification to the national court—that any link that may exist between potential repair services provided by the distributor to the manufacturers and the transfer pricing adjustments for those vehicles is, at most, indirect. The CJEU also left it to the national court to assess the impact of such a price modification on determining the taxable amount for the initial supplies of vehicles from the manufacturer to the distributor.
An exception would only apply if there were a legal relationship between the companies characterized by reciprocal performances, where the distributor provides services to the manufacturer and receives remuneration for those services in the form of such an adjustment, thereby establishing a direct link between the supply of those services and the adjustment. However, the Court found no such link in the case at hand, where the purpose of the transfer pricing true-up was to achieve a pre-agreed profit margin for the distributor, and which thus incorporated the difference between the distributor's expected and actual costs for repairing vehicle defects and faults.
The judgment confirms that the mere existence of a transfer pricing adjustment does not automatically give rise to a taxable transaction for VAT purposes. The critical factor remains the assessment of the economic reality of the transaction and the existence of a direct link between a specific supply and the consideration received. It remains true that the VAT implications of transfer pricing adjustments must always be evaluated on an individual basis, i.e., grounded in the specific facts and circumstances of each case. In this regard, we would be pleased to assist you in reviewing your contractual documentation to ensure it accurately reflects the correct VAT treatment of your transfer pricing adjustments.
This text was translated by AI.
