Transfer pricing and VAT: a relationship that should be reviewed

In business groups, it is common for several companies to share services, exchange products or make payments at year-end in order to adjust their profit margins. But could this affect VAT?

Transfer pricing seeks to ensure that transactions between related companies are valued on terms similar to those that would have been agreed between independent enterprises. VAT, on the other hand, applies to supplies of goods and services and to the consideration paid in return. Accordingly, an adjustment made to correct a company’s profitability does not necessarily have VAT implications.

Imagine a group in which a company purchases goods from another group company and distributes them. At year-end, its margin is lower than expected and it receives a compensation. Although this is referred to as a “transfer pricing adjustment”, it is important to understand what this payment actually represents.

If the compensation changes the price of the products previously sold, it may be necessary to review the invoices and the corresponding VAT. If it remunerates specific services provided by one company to another, it could be a transaction subject to VAT. By contrast, where the payment merely seeks to balance profits and there is an unidentifiable supply is made in return, there will not necessarily be a transaction subject to VAT.

This distinction has been reinforced by European case law. In the Arcomet case (2025), the Court of Justice of the European Union examined an adjustment linked to services actually undertaken between companies within the same group, which could constitute consideration for those services. In the Stellantis Portugal case (2026), the Court clarified that ensuring the margin of a distributor does not in itself amount to remuneration for a service: the payment may represent an adjustment to the price of the goods. Everything depends on the agreed obligations.

The implications may be significant: the issuance of corrective invoices, amendments to VAT returns, difficulties in justifying input VAT deductions and unforeseen tax costs. The risk is higher when an entity has a limited right to deduct VAT. Price changes can also affect the customs value.

To prevent issues, it is advisable to define the purpose of each adjustment in intra-group agreements, document the services rendered and verify whether payments relate to specific supplies of goods or services. It is also important to coordinate the tax, accounting and finance departments before issuing debit or credit notes and to maintain a consistent approach across the different companies in the group.

In short, the label given to an adjustment does not determine its tax treatment. Understanding what is being paid, why and under which agreement makes it possible to manage VAT more effectively, anticipate risks and provide greater certainty in transactions between related companies. Each adjustment merits individual review.