Transfer Pricing Adjustments Do Not Automatically Rewrite the VAT Base

Case C-603/24, Stellantis Portugal, pending before the Court of Justice of the European Union, sits at the intersection of two regimes that frequently coexist in multinational groups but rarely align seamlessly: transfer pricing and value added tax. The dispute concerns whether post-year transfer pricing adjustments, made to ensure arm’s length outcomes for corporate income tax purposes, must also retroactively alter the VAT taxable amount of intra-group transactions. The case is significant because it addresses a long-standing area of uncertainty for multinational businesses operating in the European Union, particularly those applying year-end true-ups within integrated supply chains.

Background and Facts of the Case

Stellantis Portugal, a subsidiary within the Stellantis automotive group, engaged in intra group transactions subject to a transfer pricing policy designed to ensure that its operating margin remained within an arm’s length range. At the end of the financial year, a transfer pricing adjustment was booked to align the subsidiary’s results with the group policy. This adjustment was recorded through an accounting correction between related parties and was not linked to a specific supply of goods or services identified at the time of invoicing.

The Portuguese tax authorities took the view that such an upward transfer pricing adjustment should increase the VAT taxable amount of the underlying intra-group transactions, even though the adjustment was determined ex post and was not expressly connected to individual supplies. Stellantis Portugal challenged this position, arguing that the adjustment related to profit allocation for direct tax purposes and did not constitute consideration for a taxable supply under the VAT Directive. The dispute ultimately reached the national court, which referred questions to the Court of Justice for a preliminary ruling.

Key Legal Findings at Issue

The central legal question referred to the Court concerns the interpretation of Articles 73 and 78 of the VAT Directive, which define the taxable amount as the consideration actually received or to be received in return for a supply of goods or services. The referring court asked, in substance, whether a transfer pricing adjustment, calculated globally and after the close of the financial year, can be regarded as additional consideration directly linked to a taxable supply.

The Advocate General’s analysis places particular emphasis on the requirement of a direct link between the supply and the consideration. According to settled case law, VAT is chargeable only where there is a legal relationship involving reciprocal performance and where the remuneration constitutes the actual value given in return for an identifiable supply. A mere accounting adjustment intended to ensure arm’s length profitability does not, in itself, demonstrate such a link.

Analytical Commentary and the Advocate General’s Opinion

In the Advocate General’s opinion, transfer pricing adjustments and VAT adjustments serve distinct legal and economic functions. Transfer pricing aims to allocate profits appropriately among group entities for direct tax purposes, whereas VAT focuses on taxing consumption through identifiable supplies. The Advocate General reasons that an ex post adjustment calculated on an aggregate basis, without reference to specific transactions or quantities, lacks the necessary transactional nexus to qualify as consideration for VAT purposes.

Importantly, the opinion rejects the notion that arm’s length pricing under OECD transfer pricing principles can be mechanically transposed into the VAT framework. While both systems refer to “market value” concepts, they do so in different contexts and with different objectives. The Advocate General warns that conflating the two could undermine the neutrality and legal certainty of the VAT system by introducing retroactive adjustments detached from the original taxable event.

Why This Case Matters for Businesses

The Stellantis Portugal case is highly relevant for multinational groups that apply year-end transfer pricing true-ups, particularly in distribution, manufacturing, and toll-model structures. If the Court were to follow the Advocate General’s reasoning, it would confirm that not all transfer pricing adjustments trigger VAT consequences, provided they are not directly linked to specific supplies.

This has practical implications for VAT compliance, audit exposure, and documentation strategies. Businesses would gain stronger grounds to defend the position that year-end profit adjustments remain outside the scope of VAT when they function purely as balance sheet or profit-allocation mechanisms. Conversely, the case also serves as a reminder that adjustments explicitly tied to identifiable supplies, quantities, or price corrections may still fall within the VAT base.

Strategic Insight

From a strategic perspective, the case underscores the importance of clearly articulating the nature and mechanics of transfer pricing adjustments in intra-group agreements and documentation. Businesses should ensure that year-end adjustments are framed as global profit-alignment mechanisms rather than retroactive price changes for specific transactions. Alignment between tax, finance, and VAT teams is critical to avoid inconsistent characterizations that could invite challenges from tax authorities. More broadly, the case signals judicial resistance to an automatic spill-over of transfer pricing logic into indirect tax. This reinforces the need for a nuanced, regime-specific analysis rather than a one-size-fits-all approach to intra-group pricing adjustments.

How Can MCORE Law Help

MCORE Law advises multinational groups on the design and implementation of robust transfer pricing policies that are defensible across both direct and indirect tax frameworks. We assist clients in assessing the VAT implications of transfer pricing adjustments, preparing coherent documentation, and managing audit and litigation risk in cross-border contexts. Where disputes arise, we support clients through strategic controversy management, combining technical precision with a practical understanding of tax authority enforcement trends.