Transfer Pricing and VAT

A comprehensive approach to intra-group settlements

Intra-group settlements are increasingly coming under the scrutiny of tax authorities – not only in the context of corporate income tax (CIT) but also value added tax (VAT). Recent judgments of the Court of Justice of the European Union (CJEU) show that transfer pricing may significantly affect VAT treatment, and the boundaries between these tax domains require particular attention and care.

Ceny transferowe a cło

Rosnące wyzwanie dla firm o międzynarodowym zasięgu

Wzajemne oddziaływanie przepisów celnych i regulacji dotyczących cen transferowych staje się istotnym wyzwaniem dla firm prowadzących międzynarodową działalność.

Te dwa obszary – choć pełnią odmienne funkcje i opierają się na różnych regulacjach – coraz częściej oddziałują na siebie, wpływając na decyzje strategiczne przedsiębiorstw oraz ich obowiązki podatkowe i celne.

W kontekście globalnych zmian gospodarczych i politycznych firmy muszą uwzględniać wpływ tych przepisów na reorganizacje struktur kapitałowych, wybór lokalizacji centrów usług wspólnych, przenoszenie produkcji, kształtowanie struktur własności intelektualnej oraz na bieżącą politykę cen transferowych. Brak spójnego podejścia może prowadzić do poważnych konsekwencji finansowych i operacyjnych.

Dodatkowym wyzwaniem są korekty cen transferowych, rabaty retrospektywne oraz zmiany w wynagrodzeniach – które mogą być inaczej interpretowane przez organy celne i podatkowe. Aby ograniczyć ryzyko i zapewnić zgodność z przepisami, firmy powinny dążyć do zintegrowanego podejścia do zagadnień celnych i cen transferowych, traktując je jako wzajemnie powiązane elementy globalnej strategii zarządzania ryzykiem.

When Does Transfer Pricing Affect VAT?

Transactions between related parties – whether within the same corporate group or in cross-border arrangements – may involve a wide range of services, goods, and transfers of intangibles. Where such transactions are subject to adjustments under the group’s transfer pricing policy, the key question arises: do these adjustments trigger VAT implications, and if so, how?

The most common areas of uncertainty include:

Profitability adjustments

Do these affect the VAT taxable base?

Absence of payment

Can gratuitous services or transfers be subject to VAT?

Free-of-charge supplies

Can gratuitous services or transfers be subject to VAT?

VAT deduction rights

Is input VAT deductible on general services acquired from related parties?

CIT and VAT - Separate Systems, Separate Rules

OECD Transfer Pricing Guidelines were developed for the purposes of CIT. However, VAT operates under a separate legal regime. Compliance with the arm’s length principle from a CIT perspective does not automatically ensure VAT compliance.

Even where a transaction is properly documented and justified from a transfer pricing standpoint, tax authorities may still challenge its VAT treatment.

v

Transfer pricing adjustments vs VAT adjustments

Not every transfer pricing adjustment necessitates a VAT correction. Each case requires individual analysis to determine:

Whether the taxable base is altered
Whether the adjustment relates to a specific transaction
Whether it has been properly documented and invoiced

Intra-group free-of-charge supplies

Transactions with no remuneration - e.g. sharing of resources, know-how or administrative services - may be deemed VATable if the beneficiary gains an advantage and the transaction falls within the scope of a taxable supply.

VAT Deduction on Purchases from Related Parties

Input VAT deductions cannot be disallowed solely due to group links. The key criterion is the actual use of the acquired services in VATable business activity. Businesses should ensure that purchases are substantiated - both economically and functionally.

Why is this important?

CJEU case law confirms that the interplay between VAT and transfer pricing is becoming increasingly relevant for tax authorities. For businesses, this means a growing need for detailed documentation and analysis of intra-group transactions – with separate consideration for both CIT and VAT implications.

How can we help?

At MDDP, we provide clients with comprehensive support in analysing intra-group settlements – considering both transfer pricing aspects and the associated VAT consequences. We help minimise tax risks, ensure compliance with regulations, and prepare for potential tax audits.

Our support includes:

Transfer pricing advisory

Documentation & reporting

preparation of robust documentation that supports the economic rationale for intra-group transactions and minimises CIT-related tax risks.

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Compliance review

assessment of whether transfer pricing adjustments are correctly accounted for and documented from a CIT perspective.

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Transfer pricing policies

design and update of policies for service, goods, financial, and other transactions with related entities - aligned with both business needs and tax requirements.

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Representation before tax authorities

support and defence of applied methodologies during tax audits involving intra-group settlements.

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VAT Advisory

VAT impact of adjustments

evaluation of VAT implications for profit and price adjustments in intra-group transactions, including documentation requirements.

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VAT deduction guidance

Analysis of eligibility and documentation for input VAT deductions and refunds on intangible services and transactions involving related entities.

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Audit support and dispute resolution

Representation during VAT audits and assistance in resolving VAT-related disputes.

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Contact us

Are you unsure whether your intra-group settlements are compliant with VAT and CIT regulations? Need assistance with documentation or interpreting tax laws?

Get in touch with the MDDP team of experts. Together, we will assess what actions are worth taking to ensure your organisation remains tax-compliant – today and in the future.

Transfer Pricing and VAT

A comprehensive approach to intra-group settlements

Ceny transferowe a cło