On December 12, 2024, the European Court of Justice (“CJEU”) delivered its judgment in the Weatherford Atlas Gip case (C-527/23), addressing the interplay between VAT and Transfer Pricing (“TP”) in intra-group service arrangements.
Key insights
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VAT deduction cannot be denied solely because services are shared across group companies.
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The necessity or appropriateness of the services for economic activity is irrelevant for VAT deduction rights.
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A direct and immediate link between the purchased services and the taxpayer’s taxable activities is required.
The case
Weatherford Atlas Gip, part of an oilfield services group, purchased administrative services (e.g., IT, HR, and marketing) from group companies outside Romania. These services were allocated among group entities, and VAT was accounted for via the reverse charge mechanism. The Romanian tax authorities denied VAT deductions, arguing there was no sufficient link between the services and Weatherford Atlas Gip's taxable activities, and deemed the costs unnecessary.
The CJEU ruled that:
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VAT deductions cannot be refused if services are shared among group entities, as long as the services are used for taxable activities.
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Deduction rights are not conditional on the economic profitability, appropriateness, or subjective necessity of the services.
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Tax authorities must assess VAT deductions based on objective legal criteria, not subjective interpretations.
In practice, businesses should ensure:
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Documentation: Maintain detailed records demonstrating the connection between services received and taxable activities.
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TP and VAT Alignment: Verify that service allocations comply with both arm’s length principles and VAT neutrality requirements.
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Proactive assessments: Review TP adjustments for potential VAT implications to avoid disputes.
Next steps
This judgment reinforces the need for careful planning and documentation in cross-border group service arrangements. For further assistance in aligning your VAT and transfer pricing policies, contact our advisors.