On 15 January 2026, Advocate General Kokott delivered her Opinion in Stellantis Portugal (C-603/24). The case is relevant because it highlights a tension that has become increasingly apparent since the judgment in Arcomet Towercranes (C-726/23): how VAT should deal with transfer pricing adjustments within a group that are applied to normalise profit allocation in line with the arm’s length principle.
In Arcomet, the case concerned a corporate group active in the sale and rental of cranes. A transfer pricing policy had been put in place under which a Romanian subsidiary was remunerated for its activities on the basis of a predetermined profit margin. The Belgian parent company provided centralised support services, including the negotiation of contractual terms with third parties. At year-end, true-up settlements had to be performed depending on the profit actually realised. The question was whether the resulting payments could be regarded as consideration for a service. After reformulating the preliminary question, the Court reached a fairly straightforward outcome: the transfer pricing adjustments related to services supplied by the Belgian parent to the Romanian subsidiary. That approach, however, left the underlying issue largely unanswered. In practice, the judgment was subsequently invoked quite often to bring a wide variety of transfer pricing corrections more quickly within the sphere of taxable services.
In Stellantis, Kokott seeks to temper that reflex. She returns to the core principle of VAT: not every cash flow is consideration, and not every true-up, meaning a periodic transfer pricing settlement whereby the internal price is adjusted to achieve the targeted arm’s length margin, implies a service.
First, it must be established what is being adjusted legally and economically. If only the consideration for an earlier, concrete supply changes, one remains within the system of the taxable amount as governed by Articles 73 and 90 of the VAT Directive, rather than dealing with a separate service.
Background
Transfer pricing is, in essence, a corporate income tax technique. Its purpose is to allocate profits in accordance with the arm’s length principle and it operates with methods, assumptions and ranges. Ex post corrections are therefore built into many models.
VAT starts from a different premise. It taxes specific supplies of goods and services for consideration. A taxable service requires a legal relationship involving reciprocal performance and a direct link between the supply and the consideration. The taxable amount is, in principle, the subjective consideration agreed between the parties, not a normal value constructed after the fact.
The tension arises when a transfer pricing correction is connected to business activity within the group, but the connection to clearly identifiable supplies is not clean or obvious. At that point, the VAT treatment becomes the key question: is it a price adjustment of an earlier supply, is it consideration for a new supply, or is it a payment that falls outside the scope of VAT altogether.
Facts
Stellantis Portugal purchased vehicles from manufacturers within the General Motors group and resold them to independent Portuguese dealers, who then sold the vehicles to end customers.
In the event of manufacturing defects, the dealers carried out repairs and invoiced the costs, including VAT, to Stellantis Portugal. Stellantis Portugal bore these costs and also incurred its own distribution costs such as staff, marketing and infrastructure.
Within the group, a transfer pricing agreement applied with the aim that Stellantis Portugal would achieve a predetermined operating result. The internal purchase price was initially set on the basis of expected external sales prices, reduced by distribution costs and a targeted operating profit. After the end of each reference period, the price was adjusted so that the realised result would again align with the target.
That price adjustment was recorded through credit notes or debit notes issued by the manufacturers to Stellantis Portugal. In the year concerned, this resulted in a price reduction and a refund.
The Portuguese tax administration treated that refund not as a price adjustment for the vehicles, but as consideration for domestic services supplied by Stellantis Portugal to the manufacturers, in particular distribution and warranty handling. It issued additional VAT assessments.
Stellantis challenged these assessments. After proceedings in Portugal, the matter was referred to the Court of Justice by way of a request for a preliminary ruling.
The preliminary question
The referring court asked whether Article 2 of the VAT Directive must be interpreted as meaning that the concept of a “supply of services for consideration” also covers a contractually предусмотренная (contractually provided for) adjustment, documented via a credit note or debit note, of the sales price of vehicles intended to achieve a minimum profit margin.
Analysis: Kokott puts the Arcomet case in context
1. A price adjustment is not a separate service
Kokott starts from a simple premise: an adjustment of the price of an earlier supply is not, in itself, a service. A customer does not supply a service simply because it pays more or less after the event. The VAT analysis should therefore not start from the cash flow, but from what actually happens legally and economically.
She makes this tangible by pointing to the two-way effect of the contractual pricing mechanism. Depending on the result achieved, the correction may lead to a refund by the manufacturer to Stellantis Portugal, but equally to an additional payment by Stellantis Portugal to the manufacturer. If the refund were to be characterised as consideration for a service supplied by Stellantis Portugal to the manufacturer, it would logically follow that the additional payment should also be placed within the same services framework. Stellantis Portugal would then be deemed to supply a service for which it itself pays. That amounts to an artificial construct: a service for which the purported supplier would in reality be paying itself. This is difficult to reconcile with the logic of VAT as a consumption tax.
2. Bearing costs is not an autonomous supply
The Portuguese administration inferred from the fact that Stellantis Portugal bore warranty and distribution costs that it was thereby supplying services for the benefit of the OEMs. Kokott rejects that reasoning.
Merely bearing costs or being reimbursed for costs is not a taxable transaction. VAT targets supplies, not payments as such, and a payment is only relevant where it is made as consideration for an identifiable supply of goods or services. In this case, Stellantis acts in its own capacity as distributor and seller within the chain. The fact that those costs are taken into account through an internal price formula in the final purchase price does not suffice to infer a separate service to the manufacturer.
3. The key question: the VAT treatment of transfer pricing true-ups
According to Kokott, the fundamental point is that transfer pricing true-ups do not automatically belong to a single category. It is not sufficient to characterise a correction reflexively as a service or as a VAT-irrelevant payment. The correct approach is first to determine what exactly is being corrected and through which mechanism, and only then to determine the VAT consequences.
She distinguishes three categories.
Category 1: consideration for a real, separate service
Where the parties genuinely agree on a specific service, with a legal relationship and a direct link between the supply and the consideration, there may be a supply of services for consideration. Transfer pricing can then function as a pricing mechanism, but this presupposes a real supply and demonstrable consideration. Mere internal invoicing aimed at steering profit is not enough.
Category 2: unilateral adjustment by the tax authorities in corporate income tax
A transfer pricing correction unilaterally imposed by the tax authorities for corporate income tax purposes does not, in principle, change the contractually agreed consideration. Kokott links this to the symmetry of the VAT system. An adjustment of the taxable amount must affect both parties, both on the output side and on the deduction side. That symmetry is absent in unilateral profit tax corrections, so they generally remain outside the scope of VAT.
Category 3: contractually variable price for specific supplies
Where the price is contractually variable and is determined after the fact based on parameters agreed in advance, this amounts to an adjustment of the consideration for the original supply. This falls within the rules on the taxable amount, with Article 90 applying in the event of a price reduction and Article 73 for what the supplier ultimately obtains as consideration. In such a case, the same true-up cannot at the same time be reduced to consideration for a separate service.
Commentary
The added value of Kokott’s Opinion lies primarily in the analytical framework it provides. She acknowledges the overlap between transfer pricing and VAT, but insists on a step-by-step analysis.
First, one must examine whether there is a genuine, identifiable supply that can be qualified as a separate service, with a payment that constitutes the actual consideration. Only then does VAT on a service come into play.
If that is not the case, one must assess whether the true-up is in reality a contractually variable price for specific supplies. That scenario belongs to the rules on the taxable amount: Article 90 for price reductions and Article 73 for what the supplier ultimately obtains as consideration. That is different from a recharacterisation as services.
And where it is merely a unilateral profit adjustment within the sphere of corporate income tax, it should, in principle, remain outside VAT.
For businesses that operate with period-end true-ups, the practical focus is, above all, consistency. Where the adjustment is intended to align the purchase price of specific goods after the fact with parameters set in advance, it is essentially a price adjustment. It should therefore be treated as such, with the corresponding VAT adjustments that follow. Only where, separately from that price mechanism, a distinct and identifiable service is genuinely supplied does a services approach come into view. In that case, it must also be possible to specify what the service is and why the payment is the actual consideration for it.
It remains to be seen to what extent the Court will follow this approach. Regardless, the Opinion already provides a useful reference framework today to bring discussions with tax administrations and other stakeholders back to the core: what is really being corrected, and through which mechanism.
