The CJEU provided guidance on VAT treatment of transfer price adjustments

On 9 September 2025, the Court of Justice of the European Union (CJEU) made an important decision regarding the value-added tax (VAT) treatment of transfer price adjustments. Transfer pricing is a practice between affiliated companies (i.e. companies that are parent companies or subsidiaries of each other; companies with common owners, etc., even in cross-border relations) whereby they determine the price of products or services provided to each other. The main purpose of transfer pricing rules is to ensure that controlled transactions between affiliated companies at prices below market value do not reduce their corporate tax base. Transfer pricing adjustments serve to bring the tax base to the level that would have been achieved if the taxpayer had provided the service to its affiliated party at market price.

The adjustments can be done without any actual cash flow, meaning that the parties only modify the tax base. In the case of such an adjustment, no VAT liability arises, as the adjustment cannot be considered either fully or partially as the monetary consideration for the sale of goods or the provision of services. However, in the other case of adjustment, where its value is actually paid by the affiliated party, a VAT liability may arise. According to the tax authority's practice, VAT liability may arise in relation to transfer pricing adjustments if the adjustment is considered as a contract amendment or a price reduction; if the adjustment is linked to particular transactions between the parties; or if it cannot be established beyond doubt that the adjustment was made solely for the purpose of ensuring profitability (e.g. if the transfer pricing policy between the related parties does not clearly provide for this). However, additional factors and the specific circumstances of the transaction must always be examined to make sure that the adjustment is exempt from VAT or not.

In its ruling, the court stated that the amount paid as a transfer price adjustment is subject to VAT if it qualifies as consideration for the actual provision of goods or services, which must be examined individually for each transaction. It also found that transfer price adjustments established using the TNMM method recommended by the OECD (where the adjustment amount is determined based on the net profit of the transaction) are subject to VAT. At the same time, the fact that the consideration was paid at market price does not in itself prove that the service was actually provided.

In its judgment, the CJEU also stated that VAT paid after a transfer price adjustment can only be deducted if the taxpayer can adequately prove that the services or goods were actually provided and are related to its VAT-liable activity. The presentation of an invoice is not necessarily sufficient for this proof; the tax authority may also request additional documentation deemed necessary in the given case. The exact scope of the documents that may be requested as evidence will be determined by the practice of the Member States’ tax authorities, as this is not specified in the CJEU's judgment.

The Hungarian tax authority's practice is consistent with the CJEU's findings. It is important to note that Member State authorities are required to apply CJEU judgments directly, so the current decision may provide new directions and guidance for tax authorities.