EU Courts Reshape Transfer Pricing’s Impact on Indirect Taxes

Recent judgments from the Court of Justice of the European Union, such as these in Arcomet and Tauritus, have clarified the understanding of how transfer pricing adjustments should be treated for value-added tax and customs purposes, and have made it clearer that such adjustments have wider impact for indirect tax than previously expected.

Interaction of intercompany transfer pricing with indirect tax has received considerable attention in recent years.

Transfer pricing rules relate to corporate income tax—a direct not an indirect tax. The OECD rules require prices agreed between related parties to reflect arm’s-length conditions. A transfer pricing adjustment is required if it appears that these conditions aren’t met, for example, if prices in a certain period or yearly profits are not within the required limits.

Prices for customs valuation purposes also need to be aligned with the arm’s-length principle. If a sale takes place between related parties, the Union Customs Code states that importers need to ensure that prices used for customs valuation aren’t influenced by the parties’ relationship.

The taxable amount for VAT is a subjective value that is equal to the consideration actually paid by a buyer to a seller, not an amount estimated according to objective criteria. An optional anti-avoidance rule of the EU VAT Directive (2006/112/EC) provides that the open market value is applicable in the case of intragroup transactions where one of the parties can’t deduct the VAT in full. However, not all EU member countries implemented this provision into their legislation.

Three Sets of Rules

There are important differences between three sets of rules.

First, as explained above, the methods for determining the value are different.

In addition, when the object of VAT is the subjective value of a supply and the object of customs valuation is the objective value of imported goods, for transfer pricing purposes the values of various sales are usually aggregated and the corporate income tax is levied on profits.

Another difference is the time at which the tax is due and relevant valuation becomes definitive:

• at the time of payment, delivery or issuance of an invoice for VAT;
• importation/clearance for customs;
• in the year-end/period for transfer pricing purposes.

Requests for documentation, controls of procedures and dispute resolution mechanisms are also different.

The customs valuation is harmonized in the EU, as is VAT. The methods for determining the customs value should be applied in strict order.

On the other hand, for transfer pricing purposes, there is no harmonized set of EU rules. The adoption of a transfer pricing method is left to the traders’ discretion not the tax authorities’; they can choose the method that is best suited to the group for economic purposes.

Aligning the prices determined by transfer pricing rules may create complicated issues for VAT and customs purposes.

Transfer Pricing Adjustments

If the agreed price deviates from a price that would have been agreed between unrelated parties, a transfer pricing adjustment for corporate tax purposes may be required—either by the taxpayer or the tax authority—to align the consideration with the arm’s-length principle.

Implications of transfer pricing adjustments for indirect taxes—specifically VAT and customs—aren’t always clear. Globally, tax authorities take varying approaches. In the EU, no consistent position exists on how transfer pricing adjustments affect indirect tax.

In recent years, divergent interpretations across EU member countries and lack of harmonized guidance have resulted in uncertainty and litigation. Recent rulings by the CJEU, including Arcomet, Weatherfood Atlas Gip, Högkullen AB and Tauritus, offer valuable insights but many questions remain unanswered.

VAT Aspects

EU VAT legislation offers no explicit provisions for the treatment of transfer pricing adjustments. In the absence of specific rules, general VAT principles are applied. Questions of how to deal with intercompany transactions and transfer pricing adjustments have been referred to the CJEU for clarification, and recent judgments provide valuable guidance.

Classifying adjustments. Adjustments can be divided into two categories:

• Adjustments within the scope of VAT: These arise where there is a legal relationship between parties and the payment relates to a particular supply. It must be assessed whether a transfer pricing adjustment, for example:
  
  • creates an obligation to correct a taxable amount of a past transaction,
  • is considered a payment for services provided by one of the related parties to another,
  • creates an exempt supply of financial services if any interest becomes payable.
• Adjustments outside the scope of VAT: These include adjustments not directly linked to a specific supply of goods or services.

If a transfer pricing adjustment reflects a pure profit allocation without it being related to any supply, or is unilaterally imposed by the tax authorities to achieve tax compliance only—such as through a correction of a previously submitted corporate income tax return—no VAT adjustment is required, no VAT becomes payable or input VAT reclaimable as a result of the adjustment.

The line between these two categories isn’t always clear.

EU nonbinding views. In 2011, the EU’s VAT Committee discussed the VAT treatment of transfer pricing adjustments in its Working paper No 923 and in 2018, the EU’s VAT Expert Group discussed this in its Paper No 071 REV2. Both stated that the correct VAT treatment of transfer pricing adjustments should be assessed on a case-by-case basis. “In any event, for there to be any VAT implications, the rules as regards the existence of a supply for consideration pursuant to Article 2(1) of the VAT Directive, as interpreted by the CJEU, would have to be met. Notably, there must be a supply made in exchange for consideration, and a direct link has to be established between them.”

The “link” requires that the transfer pricing adjustment can be split so as to link (part of) the adjustment to each single good being sold or service being provided. Where there is no direct link with the initial supply or no contractual obligation to make an adjustment payment, the assumption is that the adjusting payment aims to reach an agreed profit margin, which doesn’t change a taxable consideration, and as such is outside the scope of VAT.

The expert group suggested that transfer pricing adjustments that take place between parties that can deduct the VAT in full, would be left outside VAT scope. The recent CJEU judgments, such as the one in Arcomet, however, prove that the court doesn’t follow this recommendation and transfer pricing adjustments such as those aiming to reach an agreed profit margin could fall within VAT scope.

The legal uncertainty of treating inter-company transactions and transfer pricing adjustments and lack of binding EU harmonized guidance has left the issue open to national interpretation, audit scrutiny, and litigation. This lack of certainty has led to four recent VAT referrals to the CJEU, three of which have already been decided, with the fourth still pending.

CJEU Cases

The existence of a direct link between supply and consideration is clarified by the CJEU in these rulings.

Under Article 2(1)(c) of the VAT Directive, VAT applies only where a direct link exists between the consideration paid and a specific supply of goods or services.

To fall within the scope of VAT, there must be a direct link between payment and the goods or services received. According to the CJEU, such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration given in return for the service provided or the good supplied to the recipient.

Consequently, transfer pricing adjustments might be considered payment for services or change in the VAT taxable amount if there is a sufficiently direct link between any payments resulting from an adjustment and specific supplies. If so, they could have consequences for both the supplier and the recipient.

Weatherfood Atlas Gip SA. On Dec. 12, 2024, the CJEU issued its judgment in the first case on VAT on intragroup transactions (C-527/23). The court was asked whether a company receiving centrally purchased services from other related parties of the Weatherfood group, the group companies, could deduct input VAT under the reverse charge mechanism, even if those services were used partly for the benefit of other group companies.

Facts. The Romanian company Weatherfood Atlas Gip SA bears a portion of the costs for general services (such as human resources, IT, consulting), that are shared across a group. The Romanian tax authorities, or RTA, argued that these services weren’t directly linked to the company’s own VAT-able output transactions.

Decision. The CJEU decided that when services are centrally procured and shared within a group, the recipient company must prove that:

• it actually received the services;
• the services were used for its own VAT-able activity, not just the group’s; and
• the cost allocation reflects economic and commercial reality.

The extent to which services were actually used for the recipient’s VAT-able operations must be determined by:

• reviewing contracts;
• assessing business practice and internal arrangements; and
• looking at the real use of services and why they were purchased.

The deduction right doesn’t depend on whether:

• the services were necessary or profitable;
• the planned activity was actually realized; or
• the company used the services fully or only partially.

Practical implications. Businesses should:

• document their group service allocations with intercompany contracts; invoices; internal usage logs and economic rationale for cost-sharing;
• consider differentiating services by recipient where feasible; and
• prepare for audits by tracing input services to output transactions or general taxable activity.

Högkullen. On July 3, 2025, the CJEU issued its judgment in Högkullen AB v. Skatteverket (C-808/23), clarifying how member countries may determine the taxable amount for VAT purposes when services are supplied between related parties.

Högkullen AB, a Swedish parent company, provided various management and administrative services to its subsidiaries and invoiced them based on a cost-plus method. Högkullen also incurred shareholder and other accounting and fund-raising costs, which it didn’t take into account when calculating the intragroup charges. The subsidiaries were partially exempt and unable to recover their input VAT fully.

Sweden has implemented the optional anti-avoidance rule of Article 80 of the VAT Directive that provides that the open market value is applicable in the case of intragroup transactions where one of the parties can’t deduct the VAT in full.

The Swedish tax authorities considered that Högkullen’s intragroup supplies constituted a single sui generis supply, the consideration for which was less than the open market value. As there was no comparable price on the open market, the open market value would be at least equal to the full cost of providing the service. The tax authorities revalued the taxable base, including all costs such as “shareholder costs” (for example, audit and listing expenses) in the VAT base.

Decision.

• It can’t be held as a matter of principle that intragroup services are so closely linked that they form objectively a single inseparable economic supply and, therefore, a single composite supply for VAT.
• Services with distinct economic purposes (such as IT, HR, financial services) may be priced separately and compared to market equivalents.
• The VAT Directive doesn’t permit tax authorities to default to the cost-based “normal value” (Article 72(2)) without properly examining whether a market-based comparison (Article 72(1)) is feasible.
• Applying a flat group-wide price or bundling services doesn’t prevent treating all services separately for VAT.

This judgment limits the ability of tax authorities to automatically uplift the VAT base for intragroup services under Article 80 of the directive. It underscores the importance of functional analysis, proper documentation, and segmented service pricing in intragroup transactions.

Arcomet Towercranes. The CJEU ruled on Sept. 4, 2025 (C-726/23) (that whether transfer prices and transfer pricing adjustments are subject to VAT should be assessed on a case-by-case basis and that the conditions required by Article 2(1)(c) of the VAT Directive must be satisfied, as discussed above.

The fees for the services provided by a Belgian parent company (Arcomet BE) to its Romanian subsidiary Arcomet RO were calculated based on the transactional net margin method, or TNMM. Arcomet RO’s profits were adjusted in accordance with a range obtained from a TNMM benchmark study.

The CJEU found that the parties entered into reciprocal commitments in this case. Arcomet BE undertook to provide certain services and to bear the main economic risks associated with the activity of Arcomet RO, and Arcomet RO undertook to pay at the end of each year an amount corresponding to the part of the operating profit margin greater than 2.74% achieved by it.

Further, the remuneration received by the provider of the service constituted the actual consideration for the service supplied to the recipient. Therefore, a direct link existed between the services performed and the payment received, making the services fall within the scope of VAT. The fact that the remuneration is determined by reference to an operating profit margin, or that the payment may be reversed in cases of excessive losses (meaning Arcomet BE would compensate Arcomet RO), doesn’t alter this outcome.

The CJEU stated that the determination of VAT deductibility of transfer pricing adjustments is subject to an evaluation of the activity in question, supported by appropriate documentation. Based on the CJEU’s earlier case law, VAT deduction right can’t be refused only because the invoices meeting all requirements haven’t been issued, if the substantial requirements for the VAT deduction have been met.

The burden of proof to demonstrate the correct VAT recovery lies with the VAT payer, and the tax authorities can request additional documents beyond invoices. However, the requested information should align with the objective pursued and adhere to the principle of proportionality.

Stellantis Portugal. The CJEU will further clarify the VAT treatment of transfer pricing adjustments in the pending CJEU Stellantis Portugal (C-603/24) case.

The case concerns the VAT treatment of transfer pricing adjustments in the context of vehicle distribution. Specifically, the referring court seeks clarification on the interpretation of Article 2(1)(c) of the VAT Directive, which defines the scope of VAT with respect to the supply of services for consideration.

The central question is whether transfer pricing adjustments made retrospectively to the purchase price of vehicles acquired by Stellantis Portugal, acting as a distributor, from affiliated manufacturing entities, fall within scope of VAT.

The factual background involves the resale of vehicles by the distributor Stellantis Portugal to third-party dealers. Following the resale, certain after-sales services were provided by dealers such as (warranty) repair, maintenance and roadside assistance, the costs of which were subsequently reinvoiced to the distributor. These post-sale transactions gave rise to retroactive price adjustments between the distributor and the manufacturers.

Initially, Stellantis bore all the after-sales costs and then reported those costs to affiliated manufacturers, which on the basis of the reports made transfer pricing adjustments in respect of the price of the vehicles sold to Stellantis by manufacturers. The above adjustment of the vehicles’ sale price was documented by a credit or debit note issued to Stellantis by the manufacturers.

The CJEU is asked to determine whether such retrospective transfer pricing adjustments—linked to after-sales services provided by dealers and implemented via intercompany invoices—constitute new supplies for consideration under EU VAT law, or whether they represent adjustments to the original transaction value falling inside or outside the scope of VAT.

Advocate General Kokott argues that contractual transfer pricing adjustments don’t constitute separate supplies unless a specific service can be identified and linked to them.

The AG states, referring to the CJEU decision in Arcomet, that if consideration has actually been agreed for a supply of services, provided that a corresponding positive result is achieved or not achieved, there is (at the time when the relevant condition is fulfilled) a supply of services for consideration that is relevant for the purposes of VAT law.

The AG argues that Stellantis differs from Arcomet where there was a contract for provision of services, and the price of service was based on profit achieved by the receiver of the service. In Stellantis, there is no agreement under which a service is supplied by Stellantis to the manufacturer but there is agreement for price adjustments if costs exceed a certain amount.

The AG concluded that no VAT is due if there is no separate supply of services due to the absence of a contract. This doesn’t preclude a possible adjustment or reduction of the taxable amount of sale of vehicles if transfer pricing adjustments meet the requirements of being in VAT scope.

It is expected that the CJEU judgment in Stellantis will provide further clarity about VAT treatments of transfer pricing adjustments.

Practical Implications of Rulings

Companies should:

Assess the VAT consequences of their transfer pricing arrangements and intragroup services;

• document their group service allocations with intercompany contracts, invoices, internal usage logs and economic rationale for cost-sharing;
• consider segregating services by recipient where feasible;
• examine each transfer pricing adjustment individually to determine whether a sufficiently direct link exists between it and the underlying supply;
• confirm that invoices for transfer pricing adjustments within scope are fully compliant with VAT requirements and accurately describe the nature of the services provided;
• maintain clear evidence demonstrating that the services contribute to taxable business activities;
• ensure robust documentation is available to substantiate their VAT position, including correct VAT treatment, alignment of contracts with the nature of services and remuneration, and VAT-compliant invoices; and
• ensure that ERP systems allow accurate processing, e.g., by using correct tax codes.

Customs Aspects

Customs authorities of EU member countries take varying approaches on the impact of transfer pricing adjustments on customs valuation. Some recognize both upward and downward transfer pricing adjustments; others accept only upward revisions for duty purposes. Treatment of transfer pricing adjustments by customs authorities also depends on their nature. Treatment of tax-only adjustments also differs.

Some recent CJEU judgments have clarified the customs treatment of retroactive price adjustments.

Adjustments to pricing after importation, such as those resulting from transfer pricing policies, can influence the declared customs value of goods entering the EU, thereby affecting the amount of customs duties owed.

Notably, the Union Customs Code offers no explicit provisions for handling such retroactive adjustments in the context of customs valuation. The question of how to deal with post-import adjustments has been referred to the CJEU.

In the CJEU’s ruling in Hamamatsu, (C-529/16) the court found that the legal framework under the Community Customs Code didn’t support the inclusion of retroactive transfer pricing adjustments in the customs value. The ruling, however, was issued on the basis of specific factual circumstances, which left room for debate over its broader applicability. Moreover, with the Community Customs Code having been replaced by the Union Customs Code in 2016, uncertainty remained whether the same reasoning still applies under the new legal framework.

The recent Tauritus case helps to clarify these open questions.

Hamamatsu. The CJEU’s ruling in Hamamatsu raised fundamental questions about the use of retroactively adjusted transfer prices in customs valuation. The case involved intragroup transactions where the final transfer price wasn’t fixed at the time of importation but instead subject to end-of-year adjustments under a transfer pricing policy.

The CJEU held that under the Community Customs Code such post-importation adjustments—particularly those based on flat-rate allocations of residual profit—weren’t compatible with the transaction value method of customs valuation. The court emphasized that customs authorities must be able to determine the customs value at the time of importation with sufficient certainty. Since the adjustment mechanism in Hamamatsu operated unilaterally and lacked transparent objective criteria, the declared customs value couldn’t be reliably verified at the time of importation or corrected in a legally enforceable way.

As a result, the CJEU concluded that the Community Customs Code didn’t support the inclusion of retroactive transfer pricing adjustments in the declared customs value. Further, the CJEU stated that the legal framework didn’t obligate importers to disclose upward price corrections, nor did it enable authorities to prevent the selective reporting of only downward adjustments aimed at obtaining refunds.

The Hamamatsu decision introduced significant uncertainty for importers using transfer pricing models. It was unclear whether the judgment applied broadly to all forms of year-end adjustments or only to specific factual patterns—such as flat-rate internal reallocations. More fundamentally, practitioners questioned whether the findings remained valid under the Union Customs Code, which replaced the Community Customs Code in 2016 and introduced new mechanisms for post-clearance amendments and simplified declarations.

The judgment also appeared to diverge from international guidance, particularly from the World Customs Organization, which encourages coordination between direct tax and customs authorities and recognizes the relevance of transfer pricing documentation in customs valuation.

In this legal context, the Tauritus judgment (Case C-782/23) offers important clarification by distinguishing itself from Hamamatsu on both factual and legal grounds.

Tauritus. Tauritus, a Lithuanian importer of diesel and jet fuel, declared goods using provisional prices between 2015 and 2017 by applying a fall-back customs valuation method. These provisional values were based on contractually agreed terms, which stated that final prices would be determined by reference to published fuel prices and exchange rates over a defined period. These variables—market prices and currency rates—were outside the control of the contracting parties. Despite using provisional prices in the customs declarations, Tauritus didn’t always revise the customs value after receiving the final invoices, even when they showed a higher price.

Lithuanian customs authorities challenged this approach during a post-clearance audit. They argued that the transaction value method not the fall-back method should have applied for customs valuation, and that Tauritus had an obligation to update the declarations once the final prices became known. Tauritus also faced penalties for underreported customs values.

Tauritus questioned this approach by the customs authorities and the case was referred to the CJEU. The referring national court asked whether the transaction value method could still apply when the price payable at the time of importation is only provisional and subsequently adjusted based on contractually pre-agreed mechanisms. It also asked whether the adjustment should be made in the customs value when the final price is known after importation.

The CJEU held that the transaction value method remains the correct basis for customs valuation in situations where:

• the provisional price is part of a valid commercial transaction;
• the sales contract includes clear, objective, and predetermined rules for determining the final price; and
• those rules refer to external, verifiable data, such as fuel indices, exchange rates.

Crucially, the CJEU distinguished Tauritus from Hamamatsu. In Hamamatsu, adjustments were based on internal group profit allocations, without a binding method visible to customs authorities. In contrast, the court stated that Tauritus involved a pricing formula built into the original agreement, not a discretionary adjustment.

The CJEU further stressed that if the final price isn’t known at the time of importation, importers must use the simplified customs declaration procedure under Article 166 of the Union Customs Code. This allows a provisional declaration, followed by a supplementary declaration once the final price is known. Article 146(4) of the Delegated Regulation as well as Article 146(3b) allow for an extended window of up to two or three years for submitting corrections related to customs value. This procedural framework creates legal certainty around post-import adjustments and enables upward corrections (leading to additional duties) and downward corrections (potentially generating refunds).

The judgment confirms that the transaction value method isn’t automatically excluded in cases of importation involving post-import price adjustments. What matters is whether the adjustment mechanism is objective, contractual, as well as outside the influence of the parties of the contract and outside the importer’s discretion. In such cases, provisional pricing is compatible with the transaction value method, provided the simplified declaration process is properly followed.

The judgment is especially relevant for importers using transfer pricing arrangements, formula-based pricing, or index-linked contract terms. It reinforces the need for structured processes to track, document, and report post-import price changes—both to remain compliant and avoid penalties in case of upward adjustments or to secure potential refunds in case of downward adjustments.

Where final prices are only known post-import, the customs value must be adjusted accordingly, potentially increasing the duties payable or justifying a refund. Since customs value forms part of the VAT base, this adjustment also impacts the VAT liability.

Companies should now evaluate whether their valuation practices, documentation processes, and customs declarations sufficiently account for such adjustments to ensure compliance and avoid financial penalties or missed refund opportunities.

Customs authorities are now better equipped under the Union Customs Code to authorize such valuation models and enforce disclosure obligations, including binding valuation decisions or valuation rulings where appropriate.

Implications for Importers. The Tauritus judgment narrows the scope of the Hamamatsu precedent and confirms that retroactive pricing adjustments, when contractually fixed and objectively measurable, don’t disqualify the use of the transaction value method. Importers may use provisional pricing based on external benchmarks—so long as these terms are clearly reflected in the sales contract and the simplified customs procedure is used.

EU Customs Practice

The growing interplay between transfer pricing policies and customs valuation has prompted a shift in how EU customs authorities approach post-importation transfer pricing adjustments. Developments in international tax and trade standards—most notably through the Organization for Economic Cooperation and Development Transfer Pricing Guidelines and commentary from the WCO—have pushed for greater alignment.

Recent years have witnessed a more open and flexible stance by EU customs administrations. Customs authorities are now more inclined to recognize that post-importation transfer pricing adjustments—particularly those resulting from group-wide policies—can legitimately affect the customs value. Accordingly, importers should report such adjustments and, where justified, seek refunds of overpaid duties or settle underpaid amounts. This reflects the EU-wide obligation under the Union Customs Code to ensure that customs valuation reflects the actual transaction value, as adjusted under Article 70 and related provisions.

Nevertheless, aligning transfer pricing outcomes with customs declarations remains complex and often requires proactive engagement with national customs authorities. In most cases, achieving a compliant solution depends on securing a prior agreement or ruling to define how recurring transfer pricing adjustments will be handled for customs purposes.

Practical Implications

These developments highlight the growing importance for companies to assess the VAT and customs impact of their transfer pricing frameworks. As the CJEU and national courts continue to rule on similar questions, the legal landscape surrounding VAT and customs treatment of intragroup transactions is expected to gain further clarity.

It may be prudent to expressly include the indirect tax implications of transfer pricing adjustments in the relevant documentation. This could help reduce the risk of future disputes with the tax authorities. Where there is any uncertainty about whether such agreements affect indirect tax, it’s recommended to seek advance clarification, pricing agreement or a ruling from the authorities. This may also involve obtaining prior approval of their proposed approach directly with the customs authorities.

To minimize compliance risk, importers using recurring or systematic adjustments should consider:

• engaging with customs authorities in advance to obtain authorizations for using the simplified declaration process when necessary;
• communicating with authorities about the future adjustments, such as by obtaining valuation rulings or advance pricing agreements;
• formalizing procedures for adjusting customs value after release; and
• ensuring internal controls are in place to track final pricing and submit timely corrections.

By taking these steps, businesses can strengthen compliance, reduce audit exposure, and avoid unnecessary penalties or lost refund opportunities.

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

Aiki Kuldkepp is a senior manager in the VAT and customs group of the Grant Thornton International Tax Services practice.

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