Decision in ECJ case Stellanits re: VAT treatment of Transfer Pricing Adjustments

Further  to our VAT Alerts in October 2025 and March 2026 for the Arcomet Towercranes case (C-726/23) and  the Attorney General decision on the Stellantis  Portugal (C‑603/24) case, the European Court of Justice on 13 May 2026 issued its decision on the Stellantis 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.

Decision of the ECJ

The CJEU ruled that a transfer pricing adjustment which is set out in an intra-group agreement, aimed at achieving a predeterminded profit margin, evidenced by a credit or debit note and calculated on the basis of costs that include third-party repairs, does not constitute payment for a service supplied for consideration, unless a separate legal relationship with reciprocal commitments and a direct link can be established.

Comments

While the decisions of the ECJ and Advocate Gerenal were aligned, the Advocate General proposed obiter a more structured approach to the VAT treatment of transfer pricing adjustments, distinguishing three different outcomes for VAT purposes. The ECJ did not follow this framework, insread focusing on the "direct link" test based on the facts of the specific case. The ECJ based its decition on whether there was a sufficiently direct link to the provision of a service under the circumstances to bring the transaction within the scope of VAT.

Key distinctions between Stellantis and Arcomet

As discussed in our previous Alert, the following key distinctions apply between Acroment and Stellantis:

• 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.
   

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.
   

Our team remains at your  disposal for any assistance you may require.