1. Background
The case concerns transfer pricing adjustments within a group in car industry in Portugal, involving transfer pricing adjustments for cars. Costs relating to the repairs of cars were one of the parameters taken into account for the purposes of the calculation of those adjustments. Total adjustment may have led to increase or decrease of total price for a car between related parties. National tax authorities argued that the adjustments paid constituted consideration for a ‘supply of services effected for consideration’.

2. Court’s conclusion
The Court found that these payments could not be treated as consideration for a ‘supply of services effected for consideration’. The major argument of the Court for such conclusion is the lack of a legal relationship characterized by reciprocal commitments relating to the supply by the acquiring company of services to the selling company and the payment by the selling company of remuneration in respect of those services, but still leaving to the relevant national court to check if this was true.
However, the Court did not examine whether they might instead qualify as an adjustment to the price of goods.

3. Critical comment
The existence of transfer pricing payments clearly points to a real legal relationship, yet this is disregarded.
The Court gives no answer as to whether those payments could constitute an adjustment to the price of goods, so actual VAT treatment of those transfer pricing adjustment remain unclear.
As the judgment concerns transactions dating back to 2006 (20 years old) and does not comprehensively resolve the VAT treatment of the payments in question, it is a clear evidence of a serious deficiency in the tax and judicial system of EU.

4. Key practical lesson from this judgement
The case again highlights that transfer pricing and VAT operate under different logics, meaning that TP driven adjustments should be evaluated for VAT purposes in advance rather than assumed to produce consistent results.