Stellantis Ruling Clarifies VAT and Transfer Pricing Interplay

The EU’s value-added tax and transfer pricing interplay may have turned a corner with a May 13 ruling in favor of automaker Stellantis, the owner of Fiat and Chrysler.

The Court of Justice of the European Union affirmed that a transfer pricing adjustment doesn’t automatically constitute consideration for a VAT taxable supply. VAT applies only where a direct link exists between an identifiable supply and the payment received in return, the CJEU ruled.

The absence of binding, harmonized EU guidance has left the issue open to national interpretation and litigation. Against this backdrop, the Stellantis Portugal ruling provides welcome clarification.

The decision offers several takeaways:

• Companies need to perform a case-by-case assessment to determine whether a “direct link” exists between an identifiable supply and the corresponding payment.
• Certain transfer pricing adjustments nevertheless may be subject to VAT.
• Transfer pricing adjustments may qualify as price adjustments affecting the VAT taxable amount.
• Careful drafting of intragroup agreements and robust supporting documentation are essential to secure intended VAT treatment.

Transfer pricing adjustments are common in intragroup transactions. They’re used to align actual results with a group’s transfer pricing policy and the arm’s-length principle, especially where prices are set on a provisional basis during the year. Beyond corporate income tax, they may also raise significant VAT and customs issues.

Transfer pricing and VAT approaches must be aligned to avoid inconsistencies and tax risks. In practice, transfer pricing adjustment mechanisms are rarely set out clearly in intercompany agreements or documentation.

This creates issues in tax audits, making it harder to establish the rationale and nature of the adjustment and to defend its treatment for corporate income tax and VAT.

Case History

Stellantis Portugal S.A. purchased vehicles from affiliated European car manufacturers and resold them to independent dealers while also managing after-sales activities, including reimbursing dealers for the cost of warranty repairs.

Considering the distribution costs incurred by Stellantis Portugal and in accordance with the Group’s transfer pricing policy, year-end adjustments (via credit or debit notes) were made to the original vehicle sale prices so the company would achieve a pre-agreed operating-profit margin.

The Portuguese tax authorities considered these adjustments constituted consideration for a separate supply of repair services provided by Stellantis Portugal, asserting that warranty and related costs represented services supplied to the car manufacturers.

The Portuguese Supreme Court asked the CJEU whether year-end transfer pricing adjustments, intended to guarantee Stellantis Portugal a minimum profit margin and implemented through credit or debit notes, could constitute consideration for a supply of services subject to VAT.

CJEU Advocate General Juliane Kokott, in a Jan. 15 opinion, proposed a practical framework for analyzing VAT treatment of transfer pricing adjustments with three scenarios:

• When parties agreed on remuneration for a specific service, the payment may be considered to be a supply of services that qualify for VAT.
• A transfer pricing adjustment imposed by tax authorities shouldn’t affect the agreement between associated companies for VAT purposes.
• Contracts with variable pricing affecting previous supplies aren’t a separate taxable service if companies merely adjust the taxable amount of those supplies. According to the Advocate General, the adjustments at issue in Stellantis Portugal fell within this third category.

In Stellantis Portugal, the CJEU doesn’t follow this practical framework and focuses on the absence of a “direct link” between the payment at issue and any identifiable repair service (no reciprocal legal relationship existing in this respect between the parties).

The transfer pricing adjustments were merely intended to ensure that the company achieved a targeted operating margin. They weren’t linked to any identifiable supply of services, nor did they correspond to the reimbursement of specific costs. The court therefore considered that the payment at issue falls outside the scope of VAT.

The judgment however leaves open another possible characterization: the treatment of such adjustments as a correction of the taxable amount relating to previous transactions, in line with the approach proposed by Advocate General Kokott in her conclusions.

Fact-Driven Approach

The Stellantis Portugal ruling is part of a case-law saga in which the CJEU has repeatedly addressed the connection between transfer pricing adjustments and VAT.

Considering the judgment, as well as the previous CJEU decisions, businesses should:

• Assess the VAT implications of their transfer pricing policies and adjustment mechanisms.
• Review intragroup agreements, invoicing practices, and transfer pricing documentation to determine whether the relevant adjustments may fall within the scope of VAT.
• Perform a case-by-case analysis of each transfer pricing adjustment to assess whether a sufficiently direct link exists with an underlying supply.
• Retain evidence demonstrating that the underlying services are used for taxable business activities.
• Maintain documentation supporting the VAT treatment adopted, ensuring consistency between contracts, remuneration mechanisms and invoicing practices.

The analysis remains factual and depends on the contractual framework and the existence of a sufficiently direct link between an identifiable service and the payment made in return. In practice, this makes the wording of intragroup agreements and the supporting transfer pricing documentation particularly important.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Romain Dayan is a VAT partner in Paris, co‑head of the France indirect tax practice at Grant Thornton Société d’Avocats, specializing in financial services VAT.

Pascal Luquet is a partner at Grant Thornton Société d’Avocats in Paris, head of the transfer pricing practice, specializing in tax audit assistance and dispute resolution and prevention.

Laura Maison is a lawyer and VAT manager at Grant Thornton Société d’Avocats in Paris.

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