Portugal: CJEU clarifies the VAT regime for intra-group transfer pricing adjustments

The Court of Justice of the European Union (CJEU) recently delivered its judgment in case C-603/24, a case handled by the tax litigation team at Garrigues Portugal, in which the Court concluded that transfer pricing adjustments made within multinational groups do not, in themselves, constitute supplies of services for VAT purposes. According to the CJEU, such adjustments correspond to mere intra-group financial corrections, devoid of a direct synallagmatic nexus with an identifiable consideration.

A landmark in national tax litigation

This decision results from a preliminary reference made by the Supreme Administrative Court, within the context of an extraordinary appeal (recurso de revista), which in itself constitutes a significant landmark in tax litigation. Indeed, this case demonstrates the willingness of the Supreme Administrative Court to employ the preliminary reference mechanism before the CJEU even in the exceptional context of an extraordinary appeal, when questions of interpretation of EU law that are decisive for the correct application of national law are at issue.

Background to the dispute

The underlying dispute concerned intra-group transfer pricing adjustments, reflected in the accounts a posteriori, with the purpose of ensuring that an entity’s net margin remained in conformity with the group’s internal policy. The central question was whether such adjustments would constitute, for VAT purposes, supplies of services subject to tax, potentially accompanied by invoicing and VAT settlement obligations.

Position of the CJEU

The Court reaffirms that VAT applies only to transactions carried out for consideration in which there exists a legal relationship between the supplier and the recipient and a direct nexus between the service provided and the consideration actually received. In light of these criteria, the CJEU concludes that transfer pricing adjustments made a posteriori, intended exclusively to align overall margins, do not constitute an autonomous supply of services: there is no new or additional service rendered, nor any consideration remunerating an identifiable benefit in favor of a specific recipient. Consequently, there is no “supply of services” within the meaning of the VAT Directive, nor is there a taxable amount capable of being subject to tax.

This conclusion is consistent with the consolidated case law of the CJEU on the necessity of a direct nexus between the transaction and the consideration for VAT to apply, and on the irrelevance, for tax purposes, of mere financial regularizations without a delivery of independently identifiable goods or services.

Impact at the national level

At the national level, this judgment contributes to clarifying and stabilizing the treatment of transfer pricing adjustments for VAT purposes, offering taxpayers and the tax administration a sound legal framework to distinguish between: genuine intra-group supplies of services, subject to VAT; and financial transfer pricing adjustments, devoid of autonomous relevance for tax purposes.