The Court of Justice of the European Union (CJEU) has issued its judgment in Stellantis Portugal v Autoridade Tributária e Aduaneira (Stellantis) (Case C-602/24). The case concerns year-end transfer pricing (TP) adjustments within a multinational group, and whether these adjustments represent consideration for taxable supplies of services. Here the CJEU has decided no. The CJEU considered that there was no evidence of a legal relationship under which there was the reciprocal performance of the provision of repair services for remuneration. Therefore the uncertainty around VAT and TP continues.

Background

The facts of this Portuguese case are as follows: 

• General Motors Portugal (GMP), part of the General Motors group, operated as a national sales company in Portugal. It purchased vehicles from group manufacturers (referred to as ‘OEMs’) established in the EU, and sold them on to independent Portuguese dealerships, which in turn, sold the vehicles to retail customers.
• Where the vehicles were impacted by production defects or were subject to repairs under warranty or other roadside assistance matters, customers were able to bring their vehicles to local dealerships for repair. Dealerships would then arrange for the vehicle to be repaired and would be reimbursed by GMP. Local VAT was be charged by the dealerships.
• GMP would report to the OEMs the costs incurred and borne by it in its capacity as the distributor – including repair costs, but also other overheads such as salaries/staff costs, electricity and marketing expenses. Under an intra-group agreement from 2004, the value of the vehicles sold by the OEMs to GMP would be adjusted to ensure GMP earned a pre-determined profit margin. Pursuant to the agreement, the price adjustment would be determined from the external sale price of those vehicles to third parties (including dealers), the amount corresponding to the related distribution costs and the previously determined profit margin of the national sales company in question. Credit and debit notes would be issued to evidence any adjustments.
• Following a tax inspection concerning the 2006 financial year, the Portuguese tax authorities took the view that GMP had been supplying repair services to the OEMs, and that those services were subject to local VAT. GMP disputed this, arguing that the TP adjustments did not and should not constitute renumeration for repair services provided.  
• The CJEU was therefore asked to consider: Does an adjustment of the sale price of vehicles, contractually provided for in order to achieve a minimum profit margin and documented by a credit or debit note, constitute a supply of services effected for consideration?

The judgment and key conclusions

The CJEU concluded that the adjustments do not represent consideration for any supplies of services. Key aspects of the decision include:

• The importance of establishing a direct link between the service and the consideration received. This requires a legal relationship between supplier and recipient which sets out reciprocal performance, the remuneration being received by the provider of those services constituting actual consideration for an identifiable service. However, in this case, the 2004 agreement was introduced to ensure a TP adjustment guaranteed GMP a pre-determined profit – and, importantly, it was not a contract for the provision of repair services. Ultimately, the 2004 agreement and the underlying facts did not establish a legal relationship under which GMP was obligated to repair vehicles for consideration from the OEMs. Therefore, there was no reciprocal performance in this scenario.
• How to determine whether there is consideration for a taxable supply. The CJEU referenced its earlier decision in Arcomet Towercranes (Case C-726/23), which confirmed that payment must not be voluntary, uncertain or difficult to quantify. In Stellantis, the TP adjustment was calculated to include GMP’s operating costs, and not simply the repair costs. Once the agreed profit margin was achieved, there was no guarantee that GMP would be reimbursed all of its costs, in particular those incurred for the purposes of repairing the vehicles, by the OEMs. Depending on the significance of all those costs in relation to the initial transfer prices, those adjustments could give rise not only to credit notes, but also to debit notes. The CJEU therefore concluded that the link between the TP adjustment and the repair services were at best, only indirect and not sufficient to represent consideration for a taxable supply of services.
• A rejection of the Portuguese tax authorities’ argument that GMP had effectively acted as agent for the OEMs in passing on the repair costs, thereby triggering a deemed supply for VAT purposes. The CJEU found there was no evidence to this effect.
• Where it is concluded that the TP adjustment is not remuneration for a supply of services, but rather an amendment to the purchase price of the original supply (here the vehicle), it will be for the national courts to assess the implications of such an amendment of valuation to the taxable amount of that original supply. 

Practical implications

This latest CJEU decision arguably poses more questions than it answers. However, it is useful clarification that:

• TP adjustments do not automatically mean that there is consideration for a supply of services provided/received.
• The contractual arrangements and pricing structure/charging mechanism must all be considered.
• Whilst the facts of Stellantis relate to the automotive sector, the CJEU’s guidance applies more broadly and a case-by-case assessment is needed to determine any application of VAT to a specific TP adjustment or to support a particular VAT treatment.

For any questions on the potential implications of the judgment, please contact your usual Deloitte contact or the team members listed below.