AG's decision in ECJ case Stellanits re: VAT treatment of Transfer Pricing Adjustments

Further  to our VAT Alert in October 2025 for the Arcomet Towercranes case (C-726/23)  the Attorney General has recently issued her decision on the pending Stellantis  Portugal (C‑603/24) case, in relation to the treatment of transfer pricing  adjustments from a VAT perspective. 

Case background

Stellantis Portugal operated as a domestic distribution company, purchasing vehicles from European group manufacturers and selling them to independent dealers, who in turn sold them to end customers.

Under the group’s TP policy, Stellantis Portugal was required to achieve a specific operating margin for its distribution activities. The margin was determined using a resale‑minus approach based on external sale prices and distribution costs. Preliminary vehicle prices were set, after which TP adjustments ensured that Stellantis achieved the agreed margin.

Where manufacturing defects arose, final customers had repairs performed by dealers. Dealers invoiced Stellantis for the repairs (plus VAT). Stellantis bore all after‑sales and other operating costs and reported them to the manufacturers, who then adjusted the sale price of vehicles to reflect the costs borne by Stellantis. These adjustments were documented via credit or debit notes.

The Portuguese tax authorities argued that Stellantis provided VAT‑taxable services to the manufacturers by recharging repair costs, leading to VAT assessments exceeding EUR 1.5 million.

Questions submitted to the AG

The AG was asked whether retrospective TP adjustments constitute:

• a profit adjustment outside VAT scope,
• a payment for a separate service within VAT scope, or
• a change in the taxable amount of the underlying sale of goods.
   

AG's considerations

The AG outlined the possible VAT consequences of TP adjustments:

• Unilateral profit adjustments made solely for income allocation between jurisdictions are not relevant for VAT.
• TP adjustments reflecting a separate supply of services for consideration fall within VAT scope.
• TP adjustments that modify a variable sale price relate to the taxable amount of the original supply of goods. Under Article 90 of the VAT Directive, reductions in price after the supply reduce the taxable amount.
   

Conclusion

The AG concluded that no VAT correction should apply in Stellantis, because there was no contract that could justify a supply of services by Stellantis to the manufacturers. However, a price adjustment may still affect the taxable amount of the original transaction.

The CJEU will provide further clarification in its forthcoming judgment. The Court is not required to follow the AG’s Opinion, so uncertainty remains until the final decision is issued.

Key distinctions between Stellantis and Arcomet

• In Arcomet, TP payments depended on subsidiary’s profits; in Stellantis, they adjusted vehicle prices based on costs made by the buyer.
• In Arcomet, a contract existed for the provision of services; in Stellantis, no such agreement existed.
• In Arcomet, invoices were issued for services; in Stellantis, credit or debit notes adjusted vehicle prices.
   

Conclusion based on existing legislation

Transfer pricing adjustments may:

• modify the taxable amount of a supply, triggering VAT corrections; or
• fall within the scope of VAT when they reflect remuneration for services under a legal relationship.
   

Where an adjustment can be linked to a specific transaction—either as a price correction or as payment for a separate service, it may have VAT implications for both supplier and recipient.

Practical impact:

Where a direct link to a prior transaction exists, or where adjustments result in remuneration for goods or services, businesses must ensure proper VAT compliance. This may include:

• issuing VAT‑compliant invoices,
• reporting payable or deductible VAT,
• correcting previously filed VAT returns, and
• adjusting EC Sales listings.
   

These steps can increase administrative and system workloads, such as applying correct tax codes in ERP systems.

Proper documentation, including invoices, credit notes, and evidence showing the link between services and consideration, is essential to substantiating the VAT position. Inadequate handling may result in assessments, penalties, and interest. Financial institutions and other exempt entities should pay particular attention, as they may face unrecoverable VAT.

Action points for businesses

• Conclude clear intercompany contracts and assess whether a genuine supply exists for VAT purposes.
• Analyse the VAT consequences of intragroup transactions and TP arrangements.
• Assess each intragroup transaction and TP adjustment on an individual basis.
• Determine whether a sufficiently direct link exists between a payment and an intragroup transaction.
• Maintain evidence of services provided, consideration received, and their relevance to business activities.
• Ensure that invoices for TP adjustments falling within VAT scope comply with VAT requirements and describe services accurately.
• Keep robust documentation supporting the VAT treatment, the alignment between contracts and services, and VAT‑compliant invoicing.