TP adjustment and VAT – the approach to VAT likely to change
On April 3, 2025, the Advocate General of the Court of Justice of the European Union (“CJEU“) issued an opinion in case C-726/23 (SC Arcomet Towercranes SRL) concerning the VAT on transfer pricing adjustments in intra-group transactions.
In the opinion, the Advocate General stated that “remuneration for intra-group services supplied by a parent company to a subsidiary and set out contractually, which is calculated according to the transactional net margin method recommended by the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, must be regarded as the consideration for a supply of services for consideration within the meaning of that provision and must be subject to value added tax (VAT).”
The CJEU’s view is at odds with current practice followed by tax authorities in Poland and could lead to a significant turnaround in the classification of transfer pricing adjustments for VAT purposes.
As a reminder, transfer pricing adjustment refers to the correction of prices between related parties, the purpose of which is to bring prices in transactions into line with market prices (determined in accordance with the arm’s length principle). Transfer pricing adjustments can be made by changing the amount of revenue received or deductible expenses incurred.
The tax authority’s view
The tax authority generally holds the view that transfer pricing adjustments made to maintain profitability are not subject to VAT (see, for example, the ruling of 17 February 2023, reference number 0114-KDIP4-3.4012.726.2022.2.MKA).
Consequently, taxpayers treat these activities as VAT-neutral (i.e. not as consideration or its adjustment within the meaning of the VAT Act). This is an important simplification which, among other things, makes it unnecessary to analyze the TP adjustment in terms of the correct time to recognize the transaction for VAT purposes.
In his opinion, the Advocate General took a position totally different from that adopted by Polish tax authorities, i.e. that a TP adjustment should be considered as a reciprocal performance being part of a supply of services for consideration, within the meaning of this provision; this consideration should be subject to value added tax (VAT).
The Advocate’s arguments are particularly interesting here, as they point to the views expressed at the VAT Committee level. These indicate the necessity to exclude transfer pricing (TP) adjustments from the scope of VAT when such adjustments to revenues or costs are made by the tax authorities. While the VAT Committee ultimately concluded that TP adjustments should be excluded from VAT, the Advocate pointed out that this issue did not materialize in the form of a relevant regulation.
Implications for taxpayers
In its rulings, the CJEU has largely followed the Advocate General’s views. Therefore, we can expect the CJEU’s ruling in Case C-726/23 (SC Arcomet Towercranes SRL) to confirm that TP adjustments between related parties are not VAT-neutral.
Polish taxpayers have largely treated TP adjustments as operations outside the scope of VAT, a view that has also been endorsed by the tax authorities for a long time.
The CJEU ruling may indicate a new approach to interpreting VAT regulations, which could apply to past accounting periods.
If taxpayers did not secure their approach (e.g. by obtaining confirmation in the form of an individual ruling that a transfer pricing (TP) adjustment constitutes an activity not subject to VAT), this could allow tax authorities to reclassify the activity.
It takes several months for the CJEU ruling to be issued after the Advocate General’s opinion is published. This could be the last opportunity for domestic taxpayers who wish to secure their past tax settlements to obtain an interpretation / ruling confirming the VAT neutrality of TP adjustments.
At the same time, it will also be important to analyze the VAT consequences of TP adjustments for the future.
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