29. 7. 2025
29. 7.
2025
CJEU: VAT perspective on supply of services to subsidiaries
In a recent judgment, the Court of Justice of the European Union (CJEU) addressed whether a supply of several partial services by a parent company to a subsidiary in the context of active management constitutes a single supply. The CJEU concluded that the services could not automatically be regarded as a single supply, as each of them had its own identifiable nature.
The CJEU recently addressed an important question concerning the pricing of services provided by a parent company to its subsidiaries. The services included a wide range of activities such as business management, IT services, HR services, and property management.
To calculate the price of services provided to its subsidiaries, the parent company used the cost-plus method. In the price calculation, it included costs such as the lease of premises, telephones, information technology, corporate hospitality, and travel expenses.
In contrast, it excluded from the calculation 'shareholder costs' such as the cost of preparing annual financial statements, audit, general meeting and the costs of raising capital, as it considered them to be unrelated to the provided services. However, the parent company claimed full input VAT on the shareholder costs, which raised objections on the part of Swedish tax authorities.
According to the EU VAT Directive, open market value is what a recipient would have paid to an independent provider under the conditions of free competition (at arm’s length). If comparable services cannot be determined, the arm’s-length price is considered to be the total costs incurred in providing the service.
The Swedish tax administration argued that the active management of subsidiaries by the parent company constitutes a unique service, the equivalent of which does not exist on the free market. Therefore, they required the output VAT to be calculated on the arm’s-length price including the shareholder costs.
The following questions were referred to the CJEU:
- Does the provision of multiple partial services by a parent company to a subsidiary in the context of active management of that subsidiary constitute a single supply?
- Do the costs of raising capital and shareholder costs constitute costs incurred in providing management services to subsidiaries?
The CJEU emphasised that according to settled case law, each supply is normally regarded for VAT purposes as being distinct and independent. Only transactions that comprise a single supply from an economic point of view should not be artificially split.
In the present case, although the services were supplied together, each of them has its own and identifiable nature. Therefore, the services provided by the parent company cannot automatically be regarded as a single supply. In view of this answer, the CJEU did not further address the question whether shareholder costs should be included in the calculation of the price.
The judgement offers important insight for entities that provide services to their subsidiaries and shows how the transfer pricing and VAT areas are intertwined.
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