Transfer pricing and VAT
Assessing year-end adjustments

Zwei Fachkräfte gleichen Vertragsunterlagen und Abrechnungen an einem Besprechungstisch ab.

International groups often adjust transfer prices at year-end to achieve arm’s length profit margins. These year-end adjustments also require a VAT assessment. Dr. Beata Baroth and the BBC European Tax team help businesses align their transfer pricing arrangements and VAT treatment.

What the CJEU case law clarifies

In Arcomet Towercranes, decided on 4 September 2025 (C-726/23), the CJEU held that remuneration based on a profit margin for contractually specified intra-group services constituted consideration within the scope of VAT. Calculating a payment using a transfer pricing method does not rule out a supply for consideration.

In Stellantis Portugal, decided on 13 May 2026 (C-603/24), the CJEU clarified that a contractual adjustment to vehicle prices intended to secure a profit margin does not remunerate a service supplied by the distributor merely because repair costs enter into the calculation. Reciprocal obligations and a direct link between the service and the payment are required. Whether the adjustment changes the price of the original vehicle supplies must be assessed separately.

What type of adjustment is involved?

  • Payment for a supply: If the payment relates to an identifiable intra-group supply, its VAT treatment must be determined. This includes the place of supply, any exemptions and, where applicable, the reverse charge.
  • Change to existing consideration: If the adjustment changes the price of goods or services already supplied, corrections to the taxable amount, output VAT and input VAT deductions may be necessary. Section 17 of the German VAT Act is particularly relevant to German transactions. Billing documents and reporting obligations should be reviewed accordingly.
  • Payment without a link to a supply: If there is no direct link to a supply of goods or services, the payment may fall outside the scope of VAT. A general margin adjustment does not automatically constitute genuine compensation for damage. The actual economic circumstances are decisive.

What businesses should review before closing the year

Intercompany agreements, including supply and service agreements, should clearly describe the supplies, responsibilities and adjustment mechanisms. A clause merely denying a link to a supply does not replace an assessment of how the arrangements operate in practice.

Transfer pricing documentation, adjustment calculations and VAT treatment must be consistent. Supporting records should show which services were actually supplied and how the recipient uses them. Under Arcomet, evidence beyond invoices may be required where necessary and proportionate.

For cross-border transactions, the treatment on both sides should be coordinated. Missing or inconsistent records can lead to additional assessments, denied input VAT deductions and tax burdens in more than one country. Not every adjustment, however, automatically results in additional tax payable.

Plan transfer pricing and VAT together

A sound year-end closing process combines the target margin for corporate income tax purposes with a separate VAT assessment. BBC European Tax assists with reviewing intercompany arrangements, documentation and implementing any necessary corrections. Are your year-end adjustments already part of this process?