SDEU k DPH u vyrovnání ziskovosti mezi spřízněnými subjekty

In the spring, we informed you about the opinion of the Advocate General addressing the taxation of compensatory payments between related parties from the VAT perspective . The Court of Justice of the European Union (CJEU) has now issued a judgement that confirms the conclusions of the Advocate General.

To recap, the case involved a Romanian subsidiary that purchases, rents, and sells cranes, while the Belgian parent company largely manages its operations (providing services such as planning, finance, and supplier sourcing). The companies entered into an agreement whereby the parent company would issue a compensatory invoice if the Romanian company exceeded the profitability set out in the transfer pricing (TP) documentation. This indeed occurred in the years 2011–2013. The VAT treatment of this compensatory payment was the subject of the dispute.

The CJEU confirmed that the compensatory payment is, in this case, a payment for the services provided, which is subject to VAT, as it represents a genuine consideration for the services and is calculated based on predetermined criteria (even though the remuneration is determined ex post and based on TP documentation). Crucially, there is a direct link between the services and the payment (in simplified terms – the court recognizes that the Romanian company can achieve a better margin with the support services from the parent company).

Furthermore, the CJEU concluded that tax authorities may require, in addition to the invoice, other documents (e.g., activity reports, progress statements) if such a requirement is necessary and proportionate, and the invoices alone do not clarify the extent or nature of the services.

Unfortunately, the court did not address the VAT treatment of a potential compensatory payment flowing in the opposite direction (if the Romanian company incurred excessive losses). It also did not comment on the situation where the profitability of the Romanian company was within the agreed range, and no payment occurred. Would this be a transaction outside the scope of VAT, a service in the opposite direction, or even a barter? There is also the question of whether the VAT treatment would differ if the companies had not entered into any mutual service agreement.

The judgement confirmed that each profit adjustment between related parties must be assessed individually even from the VAT perspective. We would be happy to assist you with the assessment or setting up payments between related parties.

Authors:

Nikola Kratochvílová

Lenka Doležalová