On 3 April 2025, the Court of Justice of the European Union (CJEU) published the non-binding opinion of its Advocate General (AG) in a case involving a taxpayer group that had conducted a transfer pricing study which led to an agreement ensuring a Romanian group entity a specific profit margin range, with adjustments through annual invoices if margins exceeded set limits. The case looked at the VAT treatment of these annual invoices.
The AG observed that the determination of whether a transfer pricing adjustment falls within the scope of VAT needs to be made on a case-by-case basis, but in the specific fact pattern of this case the AG has recommended that the CJEU rule that the transfer pricing adjustments should be subject to VAT. This was because the AG considered there was a direct link between the contractual services provided by the parent company to the Romanian subsidiary and the adjustment amounts.
It is likely to be a few months at least before we see a judgment from the CJEU in this case and the AG Opinion, in the meantime, is not binding. However, if the CJEU does follow the same reasoning as the AG, it could have wider implications for multinational groups with EU operations depending upon the precise wording of the decision. KPMG in the US has prepared more detailed commentary on this Opinion.
NB – The VAT treatment of transfer pricing adjustments has been unclear for a long time, both in the EU and the UK where HMRC guidance is similarly limited, and it is not clear that this case on its own will go far in helping to clarify the position. The AG said that while it might be tempting to seek to provide a principled answer to the question of whether or not transfer prices and adjustments thereto are subject to VAT, the reality is more complex, hence the need for a case-by-case assessment. However, there are a number of other EU cases in the pipeline looking at this point and it is hoped that, in time, more clarity will emerge.