- with Finance and Tax Executives
January 2026 – For a long time, tax authorities and practitioners lived with the growing fear that every Transfer Pricing (TP) adjustment would automatically trigger a VAT consequence. However, two recent developments at the CJEU have provided a much-needed map for this terrain. While the Court's ruling in Arcomet (C-726/23) reinforced the transactional nature of VAT, AG Kokott's recent Opinion in Stellantis Portugal (C-603/24) suggests a vital stopping point: VAT cannot simply "swallow" profit-level adjustments.
The Arcomet Standard: VAT follows the transaction, not the method
The CJEU's judgment in Arcomet sent a clear message. When a contract includes price remuneration and revision clauses, using a TNMM-based mechanism, for a given supply, that lead to a post-supply increase in value, that increase is intrinsically linked to the original transaction. Therefore, it must be reflected in the VAT taxable amount. The key here was the nexus: the adjustment was directly tied to the specific supply of services, as TNMM served as a pricing mechanism for genuine services. In short: if you change the price of an identifiable service, you change the VAT.
The Stellantis Case: When profit allocation is not a VAT transaction
But what happens when an adjustment isn't about the price of a service, but about the profitability of a company? This is where AG Kokott draws a line in Stellantis Portugal.
In this case, true-ups were made to ensure a distributor achieved a pre-defined arm's length return, using the TNMM method. Unlike Arcomet, these were not remuneration for a supply. They were "profit-levelling" payments. AG Kokott argues that these payments lack the "direct link" required for VAT for two reasons:
- No specific consideration: A payment to hit a net margin target is not a "service" provided by the distributor to the principal.
- No direct supply link: You cannot easily trace a year-end margin adjustment back to individual invoices or specific supply.
Transactional vs. institutional adjustments
The contrast between the Arcomet ruling and the Stellantis Opinion creates a sophisticated and coherent framework for tax practitioners.
- Transactional adjustments (Arcomet):If your TP adjustment determines the remuneration for identifiable services or specific supplies or adjusts such remuneration, it is VAT-relevant.
- Institutional/entity adjustments (Stellantis):If your adjustment is a pure accounting "true-up" to satisfy a Profit Level Indicator (PLI), without remunerating a distinct supply, it remains outside the scope of VAT.
"Safe Harbor" of the TNMM?
If the CJEU follows AG Kokott in its final Stellantis judgment, it will provide a massive relief for multinational groups using the Transactional Net Margin Method (TNMM). It suggests that as long as adjustments are kept at the "profitability" level and are not meant to remunerate specific services and goods, the administrative burden of VAT corrections can be avoided. The decisive factor is not the use of TNMM, but whether the adjustment remunerates a VAT-relevant transaction or merely equalises profitability.
Conclusion
We are witnessing a moment of judicial maturation. The CJEU is moving away from the idea that VAT and TP must always overlap. Instead, it is reaffirming a foundational VAT principle: VAT follows transactions, not profits. By distinguishing between "price remuneration" (Arcomet) and "profit equalization" (Stellantis), the legal system is providing a clearer, more predictable path for global trade. The takeaway for tax managers is clear: the VAT risk of a TP adjustment depends not on the method used, but on its legal and economic characterisation - where TNMM prices a service, VAT applies; where it merely equalises profit, VAT must stop.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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