The Bottom Line
Recent decisions from the Court of Justice of the European Union (ECJ) provide insight into the interaction between value-added tax (VAT) and transfer pricing. The ECJ indicates that, in certain circumstances, transfer pricing adjustments may have VAT considerations. While transfer pricing is intended to allocate profits among related entities, VAT is applied on a transaction basis. Accordingly, transfer pricing adjustments may be reviewed independently, on a transaction-by-transaction basis, to determine potential VAT considerations.
VAT may apply when there is:
- a legal relationship between the parties,
- reciprocal performance, and
- a direct link between the payment and an identifiable supply.
Action Items
Forvis Mazars Group provides additional discussion of these ECJ decisions in the alert “VAT and transfer pricing: recent ECJ guidance for multinational groups.” Multinational groups should consider these developments when evaluating VAT treatment of intercompany transactions.