In its recent ruling in the Stellantis case, the ECJ has clarified the VAT treatment of transfer pricing adjustments linked to warranty repair costs. In essence, the Court has ruled that transfer pricing adjustments made within a group to guarantee a distributor a target profit margin do not, as such, constitute consideration for a VAT taxable supply of repair services, even where those adjustments take account of warranty or recall repair costs borne by the distributor.
Such adjustments can only be considered to be in scope of VAT provided that there is a direct link between an identifiable service and a specific remuneration agreed between the parties. A mere payment from one party to another, without a supply which can be identified as linked to that payment, is not sufficient to create VAT consequences.
The dispute arose between Stellantis Portugal, S.A. and the Portuguese tax authorities. Within the General Motors group, Stellantis Portugal acted as a national sales company, purchasing vehicles from group manufacturers (OEMs) and reselling them to independent dealers in Portugal.
Where vehicles required repairs due to manufacturing defects (recall campaigns), manufacturer warranties, or roadside assistance schemes, the independent Portugese dealers carried out the repairs and invoiced Stellantis Portugal including VAT. Those costs were subsequently taken into account in transfer pricing adjustments made between the OEMs and Stellantis Portugal under an intra‑group agreement designed to ensure that Stellantis Portugal achieved a pre‑determined profit margin, in accordance with the transfer pricing policy of the group.
Following a tax audit, the Portuguese tax authorities argued that Stellantis Portugal had effectively provided repair services to the OEMs, and the transfer pricing adjustments constituted remuneration for those services, triggering VAT. The case was ultimately referred to the ECJ.
The Court referred to its earlier case law that a transaction is subject to VAT only where:
Applying these principles, the ECJ made several important findings:
As a result, the Court held that any link between the repair activities and the price adjustments was at most indirect and insufficient to qualify as consideration for a taxable supply of services. The ECJ concluded that an adjustment of a transfer price, duly provided for in an intra‑group agreement and intended to guarantee a pre‑determined profit margin, does not constitute consideration for a supply of services subject to VAT, even if calculated taking account of repair costs, unless there is a legal relationship involving reciprocal commitments and a direct link between the service and the adjustment.
It is important to note that while the Court is of the opinion that the transfer pricing adjustments in the referred case did not constitute VAT taxable repair services, it leaves room for interpretation of what the VAT treatment of these TP adjustments should be, i.e. simply outside scope of VAT (in which case no correction is required for VAT purposes), or a correction of the purchase price of the original supply of the cars (in which case a debit or credit note should be issued, following the VAT treatment of the original supply).
Following the judgement, and taking into consideration that both on a Belgian and EU level, the tax authorities tend to review these TP adjustments with improved scrutiny, we would recommend all multinational groups to:
While the Court ruling provides some much-needed clarification, the outcome remains highly fact‑dependent, and businesses should proactively assess their contractual and operational set‑up.
For case‑specific advice or a review of your intra‑group arrangements, please contact your BDO VAT or transfer pricing advisor, or send e-mail to the following address: btw-tva@bdo.be or contact one of our VAT experts or Transfer Pricing experts directly:
