Intra-group settlements under scrutiny by the CJEU – what does the Weatherford ruling mean for intra-group service acquisitions?

In the first article of our TP & VAT series (link: https://www.mddp.pl/intra-group-settlements-under-the-scrutiny-of-the-cjeu/ ), we outlined the general background to recent rulings by the Court of Justice of the European Union (CJEU) in this area.

Today, we delve deeper into the topic by analysing the Weatherford judgment (Case C-527/23), which carries significant implications for the interpretation of VAT deduction rights in transactions between related parties.

In December 2024, the CJEU issued a landmark ruling in the case of Weatherford Atlas Gip SA (C-527/23). The Court sided with the taxpayer, reinforcing the limits of tax authorities’ powers – particularly in the context of the right to deduct input VAT.

This decision, alongside cases such as Arcomet and Högkullen, highlights the complexity and importance of issues at the intersection of VAT and transfer pricing. So what are the key takeaways from the Weatherford ruling? And what are the implications for companies operating in Poland?

The context of the Weatherford case (C-527/23)

The case concerned the Romanian company Weatherford Atlas Gip, operating in the oil services sector, which in 2016 acquired another group entity – Foserco SA. Foserco had purchased a range of general administrative services from foreign related parties – group companies based outside Romania. The VAT on these services was settled via the reverse charge mechanism.

Following a tax audit, Romanian tax authorities challenged Foserco’s right to deduct input VAT on these administrative services, claiming that the services were not demonstrably linked to the company’s taxable activity. Crucially, the authorities did not question whether the services were actually performed, nor did they allege fraud or sham transactions – on the contrary, they confirmed that the services had been rendered. However, the tax authorities deemed the services economically unnecessary. Concerns over whether such an approach was compatible with the VAT Directive prompted the Romanian court to refer preliminary questions to the CJEU.

The CJEU’s position

In its judgment of 12 December 2024, the CJEU held that the denial of the VAT deduction right violated the fundamental principle of tax neutrality. This principle guarantees the right to deduct input VAT on expenses related to economic activity, irrespective of their purpose or outcome.

The Court emphasised that tax authorities must base their decisions on objective evidence, not subjective assessments of economic rationality. If services – such as administrative support – form part of general business overheads and are factored into the price of goods or services, the associated costs are deductible. The key criterion is the actual use of the services in the business activity, not whether they were strictly necessary.

Implications for taxpayers within corporate groups

Although the Weatherford case concerned Romanian VAT law, its implications are EU-wide and may significantly influence domestic practice in Poland.

The CJEU’s judgment is likely to prompt tax authorities and courts to reconsider their current approach to intra-group transactions. For taxpayers, this offers both enhanced protection against arbitrary fiscal intervention and increased responsibility to maintain proper documentation.

The Court made it clear that the burden of proof lies with the taxpayer, who must demonstrate the link between acquired services and taxable business activities. Therefore, it is crucial for corporate groups to ensure they possess comprehensive, reliable documentation that evidences the economic rationale and actual nature of the expense. Without this, even formally permissible deductions may be challenged for lack of due diligence.

In summary, the Weatherford ruling serves as a reminder that taxpayers operating within group structures must balance the defence of their rights with rigorous documentation. Now is an opportune time to reassess intra-group arrangements – as documentation quality may ultimately determine a company’s tax risk exposure during an audit.

What about transfer pricing?

Transfer pricing regulations, much like the CJEU’s guidance, require taxpayers to demonstrate a genuine link between incurred costs and derived economic benefits. In practice, this necessitates evidence in the form of well-prepared transfer pricing documentation and a robust functional analysis.

Moreover, our experience shows that a well-designed TP policy – complemented by an approach that also supports the VAT position – is not just best practice but a vital component of effective tax risk management.

What about VAT?

Although VAT legislation formally allows for the deduction of input VAT “to the extent that goods and services are used for taxable activities”, it is equally important to have documentation proving the provision of intangible services.

This judgment also provides a crucial safeguard of VAT neutrality – tax authorities cannot arbitrarily decide which services are necessary for a business and which are not. Evidence of service performance and a clearly articulated TP policy will together help protect both VAT and corporate income tax positions.

How can we help?

We support businesses with a comprehensive approach to intra-group settlements – particularly in light of current and upcoming CJEU rulings. By integrating transfer pricing and VAT expertise, we identify potential risks, assess documentation, and assist in developing solutions aligned with legal requirements.

We invite you to get in touch – let’s explore how recent CJEU jurisprudence may affect your organisation.