At every year end a French subsidiary receives its transfer pricing adjustment. The question that follows is not an accounting one but a tax one: does it need an invoice, and does VAT belong on it? In 2025 the answer is still unwritten.
Two regimes that measure different things
VAT takes as its base the consideration actually received for a supply of goods or services. It does not call for a market price, except in the anti-abuse cases of articles 72 and 80 of the VAT Directive, which bite mainly where deduction is not full.
Transfer pricing looks for the opposite: the arm’s length price between related parties, often through a margin analysis rather than the price of a single transaction.
That is where the whole difficulty comes from. VAT requires a direct link between a supply and its payment. Most adjustments, however, address overall profitability, not identifiable goods or services. They cannot be tied to any particular transaction.
What the judges said in 2025
Two cases were meant to bring clarity.
| Case | Question | Where it stands |
|---|---|---|
| Arcomet Tower Cranes, C-726/23 | Do payments from a subsidiary to its parent arising from an adjustment amount to consideration for VAT purposes? | The Advocate General says they do, as consideration for a supply of services. The opinion does not bind the Court, but it carries weight |
| Högkullen AB v Skatteverket, C-808/23 | Do partial recharges from a holding company to its subsidiaries, excluding overheads, produce a VAT advantage? | The Court holds that each service is to be assessed on its own, not as one single global supply |
No settled line emerges from that. What emerges is a direction.
What this means for a French subsidiary
The subsidiary carries the entry, and the subsidiary is what an audit looks at. Three points are settled before the year end, not after.
First, the method. If it names specific transactions, the adjustment can be tied to a supply and VAT follows. If it rests on an overall margin, that link is missing, and it is precisely that absence which has to be demonstrable.
Second, the right to deduct. Articles 72 and 80 aim first at situations where deduction is not full. A subsidiary with a deduction ratio below one hundred per cent is therefore more exposed than one without.
Third, the documentation. An adjustment imposed by a foreign authority concerns in practice only the audited entity, not its contractual counterparty. Explaining that two years later, with no memorandum written at the time of the adjustment, is hard work. See cross-border advisory
Sources: articles 72 and 80 of the VAT Directive; CJEU, cases C-726/23 and C-808/23. Position as at 19 August 2025.