Year-end Transfer Pricing adjustments: why VAT and Customs are suddenly in the room

The classic scenario 

A group entity, acting as a limited risk distributor or as a contract manufacturer earns a routine margin during the year. After year-end, a transfer pricing true-up brings the result back to arm’s length. From a transfer pricing perspective? Business as usual. From a VAT or customs perspective? Not always.  

VAT: more than an accounting entry? 

 Authorities increasingly ask whether a transfer pricing adjustment is:  

• A consideration for a supply 
• A price adjustment 
• Or something entirely outside the scope of VAT 

The answer depends less on labels and more on economic reality. This was echoed in the Advocate General’s opinion in the Stellantis case (below this article, additional details on the opinion is included), which emphasized that:  

• Not every transfer pricing adjustment automatically triggers VAT 
• A direct link to a specific supply is key 
• Profit reallocations are not, by default, a VAT taxable consideration 

Useful, certainly. But it doesn’t mean you’re off the hook! 

Recently in the Stellantis ECJ case, some light was already provided on the VAT treatment of transfer pricing year-end adjustments. For more details on the opinion of AG Kokott in the Stellantis case, read our article 'Transfer pricing and VAT: more clarity'.

And customs? 

Often overlooked, until adjustments affect the price actually paid or payable for imported goods. Customs authorities increasingly expect alignment between transfer pricing policies, intercompany pricing mechanisms and customs declarations. A transfer pricing adjustment booked after year-end, with no customs follow-up, raises questions. 

The real risk 

The biggest exposure is not VAT or customs in isolation. It’s inconsistency:  

• Transfer pricing documentation says one thing 
• VAT treatment says another 
• Customs files say nothing at all 

That’s where audits become uncomfortable. 

The takeaway 

Year-end transfer pricing adjustments are no longer a quiet back-office exercise. They sit at the intersection of transfer pricing, VAT and customs, and authorities are increasingly looking at the full picture. 

If your group makes regular transfer pricing adjustments and hasn’t revisited the indirect tax and customs angle recently or the interaction between them, it may be time for a conversation.  

More information?

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