CJEU Ruling Sheds Light on VAT Pricing Rules

Högkullen is the parent company of a real estate management group. It provided various management services to its subsidiaries, with the value of these services determined on a cost-plus basis.

The Swedish tax authorities challenged this valuation, arguing that the services were priced below their open market value. In their view, the value should reflect the total costs incurred by Högkullen i.e. not only those directly related to the management services provided to subsidiaries, but also costs associated with its shareholding activities. That was because VAT law required the value for VAT purposes to be based on the total costs of the parent as the subsidiary receiving the services was partially exempt. The reasoning was also that the services constituted a single, indivisible supply, whose market value could not be determined due to the absence of comparable transactions between independent parties.

However, the Court rejected this approach. It held that - in the present instance - the management services should be treated as distinct supplies, each capable of being individually assessed for market value.

Key takeaway

This judgment comes with a series of other cases where the interaction between service pricing and VAT becomes a recurring issue. Businesses should ensure that their valuation methodologies are aligned with general VAT principles and that any approach adopted is supported by appropriate legal documentation.

Reference

JUDGMENT OF THE COURT (First Chamber)