Transfer pricing is subject to VAT - if it is a correction of the price.

Opinion of Advocate General Kokott of 15.01.2025, C-603/24, Stellantis.

Background

• Stellantis Portugal is a Portuguese company. It distributes cars.
• The company purchases cars from other affiliated companies - the manufacturers.
• The company then sells these cars to independent (unaffiliated) dealers.
• The company and the manufacturers have entered into transfer pricing agreements.
• Under these agreements, prices between manufacturers and the company are set at market levels. This determination is made using a specific algorithm. One of the variables is the amount of car distribution costs incurred by the company.
• Under the contractual mechanism, preliminary prices are first set and, after the end of a specified period, these prices are adjusted to market levels so that the Company makes an appropriate profit.
• In connection with the above, manufacturers issued appropriate credit or debit notes to the Company.
• The aforementioned car distribution costs include, among others, the costs of repairing defects in cars. When a car sold by the Company has defects, the Company bears the repair costs. It then passes on information about these costs to the manufacturers. As indicated above, the amount of the costs affects the transfer price calculation algorithm.
• In this situation, the Portuguese tax authority considered that the Company had in fact charged these costs to the manufacturers and, as a result, had provided VAT-taxable services to the manufacturers.

Question referred by the Portuguese court

Is there a service supplied for VAT purposes when such adjustment of the transfer price is made (transfer price adjustment through charging the costs by Stellantis Portugal to the manufacturers)?

Reasoning of Advocate General

A. “Literal understanding of the question asked”

• In the circumstances described, the company incurred high distribution costs and therefore, in accordance with the accepted transfer pricing rules, received a specific refund from the manufacturers (transfer price reduction) (25).
• Therefore, the referring court asks whether such a transfer price reduction constitutes the provision of services by the company to the manufacturer (25).
• This situation can also be understood as follows: since the company incurs costs on behalf of the manufacturers, it provides them with a service (28).