Vat and transfer pricing, oil and water?


By Antonio Barba, Cuatrecasas
By Antonio Barba, Cuatrecasas

By Antonio Barba.

After years of reading thousands of pages on direct taxation under the BEPS project and the EU initiatives to counteract aggressive tax planning, I have welcomed as a relaxing read the consultation sent by the EU Commission to the VAT Committee on VAT implications of transfer pricing.

This document is very well-written (you can find it here), and in just 24 pages it clearly shows the different approaches towards market value governing direct and indirect taxation.

The EU Commission reminds us that, while the arm’s length principle is the core rule that multinational groups must abide for direct tax purposes, in the case of VAT, the taxable base of transactions is the consideration agreed by the parties.

Any VAT specialist learns in the first month of practice that consideration is the subjective value the parties give to a transaction and not a value estimated by objective criteria (ECJ cases, e.g, Naturally Yours and Astra Zeneca). By contrast, all transfer pricing practitioners will tell you that the price agreed between related parties has no real value for direct tax purposes when it deviates from market value.


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