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The Commission services wish to discuss with the VAT Committee the possible VAT implications of transfer pricing rules laid down for the purposes of direct taxation. Such rules are aimed at ensuring that the conditions of the transactions within a multinational enterprise group ("MNE group"), including the price, match comparable market conditions and that profits are fairly divided between the jurisdictions in which a multinational enterprise ("MNE") operates .

Hence, it is worth examining whether the application of such transfer pricing rules could have VAT implications for Member States, in an attempt to provide legal certainty for businesses and tax administrations.

The Organisation for Economic Co-operation and Development (OECD) and the G20 member countries have undertaken a project to tackle Base Erosion and Profit Shifting (BEPS project), which deals in part with some transfer pricing issues. However, it is outside the scope of this document to examine, in particular, the potential VAT implications of the BEPS project outcome.


There is a tension between the transfer pricing rules set out for the purposes of direct taxation which, based on the arm's length principle seek to arrive at the arm's length valuation of a transaction (i.e. the open market value), and VAT rules, generally based on the existence of a supply for consideration, where consideration is seen as a subjective value (i.e. the price actually paid).

As regards the interaction between transfer pricing and VAT, transfer pricing adjustments (upwards or downwards) might have VAT implications, for instance, where such an adjustment could be seen as more or less consideration given in exchange for a taxable supply of goods or services already made. If an adjustment is found to constitute more or less consideration for a supply, this could arguably lead to an increase or decrease in the VAT taxable amount of that transaction, where the VAT to be paid has been calculated according to Article 73 of the VAT Directive.

For there to be any VAT implications, though, it is necessary for there not only to be a supply for consideration pursuant to Article 2(1) of the VAT Directive but also for the consideration to be directly linked to that supply. This should be assessed on a case-bycase basis. In order to assess whether the above requirements are met, several aspects should be taken into account:

Interaction between direct and indirect taxation

Although the CJEU has never expressly dealt with this issue, it has in the past limited the potential correlation between a direct tax rule and the rules laid down in the VAT Directive.

Existence of the arm's length principle in the VAT Directive

While the VAT Directive acknowledges the possibility that the price at arm's length may have to be used under certain conditions in order to determine the taxable amount of a supply of goods or services based on the arm's length value, the general rule laid down in Article 73 of the VAT Directive is that the taxable amount is everything which constitutes consideration, understood as the subjective value actually received.

Existence of consideration

For a transfer pricing adjustment to possibly be seen as more or less consideration given in exchange for a supply, it seems that such adjustment must not only be made for tax purposes, but it has to be reflected in the accounts of the parties to the transaction. In other words, there has to be an actual element which could be identified as extra consideration for the supply already made.

Existence of supply

A payment, either in money or in kind, could only be seen as consideration where made in return for a taxable supply of goods or services. Therefore, it must be possible to link that payment to a specific transaction. Where transfer pricing adjustments are made on the basis of aggregated amounts, it should be possible to allocate them to individual transactions in order for them to have VAT implications.

Existence of a direct link between supply and consideration

To fall within the scope of VAT, there must be a direct link between such payment and the goods or services received. According to the CJEU, such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration given in return for the service supplied to the recipient. Based on the existing case-law of the CJEU as regards the existence of a direct link, it is unclear whether transfer pricing adjustments would always meet this requirement.

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