Intra-group settlements under the scrutiny of the CJEU – key issues in transfer pricing and VAT

The issue of intra-group transactions in the context of value-added tax (VAT) is increasingly attracting the attention of the Court of Justice of the European Union (CJEU). Recent cases underscore the importance of delineating the boundaries between direct tax (CIT) and indirect tax (VAT) regulations, as well as the significant practical implications that transfer pricing has on tax treatment.

Transfer pricing and VAT – what is the CJEU examining?

While VAT remains the central focus, it is impossible to ignore the relevance of corporate income tax (CIT) provisions, particularly those governing transfer pricing – i.e. settlements with related parties.

The cases currently before the CJEU concern matters at the intersection of transfer pricing and VAT – especially the alignment of the arm’s length principle, as established by OECD guidelines, with the VAT rules governing the determination of the taxable base.

Recent CJEU Cases

Weatherford (C-527/23)

In its ruling, the CJEU confirmed that input VAT on general administrative services (such as IT, HR, marketing, accounting, advisory) purchased from related parties is deductible, provided these services are used in the taxable activities of the recipient. Tax authorities cannot deny the right to deduct simply on the grounds that the services are, in their view, unnecessary or unreasonable.

Arcomet (C-726/23)

This case concerns remuneration adjustments in leasing agreements for construction equipment between related parties and whether such adjustments constitute consideration for taxable supplies. The Advocate General has issued an opinion; we await the final judgment from the CJEU.

Högkullen (C-808/23)

This matter involves intra-group real estate transactions carried out without remuneration. The core issue is whether such transactions can still be subject to VAT. The Advocate General’s opinion has already been delivered, and the ruling is pending.

Stellantis Portugal (C-603/24)

The most recent case relates to the impact of transfer pricing adjustments on the VAT taxable base. Filed at the end of 2024, the case is still at an early stage, with no Advocate General’s opinion or hearing date set.

OECD Guidelines vs VAT – The Advocate General’s Perspective

In the Arcomet and Högkullen opinions, the Advocate General emphasized the following:

• each transaction must be assessed on a case-by-case basis.
• the OECD Transfer Pricing Guidelines were developed for direct tax purposes and follow a different logic than that applicable to indirect taxation such as VAT.
• transfer pricing methods used for income tax purposes may not align with the VAT framework, necessitating separate and comprehensive analysis from both CIT (including transfer pricing) and VAT perspectives.

As a result, these proceedings could have significant implications for corporate groups operating across the EU – especially those engaging in substantial intra-group settlements that may trigger different VAT and CIT consequences.

What should businesses be considering now?

In light of the issues currently under review by the CJEU, now is an opportune moment for companies to reassess their approach to intra-group transactions, from both CIT and VAT standpoints.

We recommend paying particular attention to the following areas, where our team can provide targeted support to address the nuanced differences between CIT (transfer pricing) and VAT compliance:

Transfer pricing support

• Documentation & reporting: preparation of robust transfer pricing documentation that justifies intra-group arrangements on commercial grounds and mitigates the risk of CIT reassessments.
• Review of adjustment compliance: evaluation of whether transfer pricing adjustments are properly reflected and documented for CIT purposes.
• Transfer pricing policy design: development and maintenance of transfer pricing policies for services, goods, financing, and other transactions that are both business-aligned and tax-compliant.
• Representation in tax audits: defending applied transfer pricing methods during tax audits.

VAT Advisory

• Analysis of pricing adjustments: assessment of whether profit or pricing adjustments in intra-group transactions are appropriately taxed and documented for VAT purposes.
• VAT deductibility advice: evaluation of entitlement and evidence for VAT input deduction on intangible service acquisitions and related-party transactions.
• Audit support & dispute resolution: assistance during VAT audits and support in resolving disputes with tax authorities.

How can MDDP experts help?

At MDDP, we assist clients in adopting a holistic approach to intra-group settlements – especially in the context of current and upcoming CJEU judgments. We combine deep expertise in both CIT (including transfer pricing) and VAT, allowing us to identify tax risks from both perspectives, analyze documentation, and develop compliant, practical solutions.

In upcoming articles, we will delve deeper into each CJEU case and the Advocate General’s opinions – as every ruling and opinion represents a topic warranting detailed discussion. We will continue to keep you informed about the evolving case law and its impact on tax practice – and how best to prepare for it.

We invite you to get in touch – together, we can evaluate how the evolving CJEU case law may affect your organization and your intra-group tax arrangements.