ECJ judgments

The recent judgement of the CJEU concerns the establishment of the fair market price from a VAT perspective

C‑808/23. – Högkullen AB

Where the taxable amount regarding the management services provided by the parent company must be determined by reference to the arm’s length principle, the distinct components of such services must be examined separately to determine the fair market price.

Högkullen AB provided “management” services to its subsidiaries, comprising executive management, financial, real estate management, investment, IT services, and HR administration. The service fee was determined uniformly based on the cost-plus method. Since Högkullen AB also performed activities that did not entitle it to VAT deduction, the Swedish tax authority concluded that the VAT base of the management services provided to affiliated companies must be determined in accordance with the arm’s length principle. In this context, the arm’s length price was determined to be equivalent to cost, as the unique and indivisible nature of the management services made it impossible to identify comparable services on the open market. In the course of the administrative and subsequent judicial proceedings, Högkullen AB did not dispute the applicability of the arm’s length principle, only the method of price determination. In response to a preliminary ruling request referred by the Swedish Supreme Administrative Court, the CJEU held that, in the case of management services, it cannot be generally assumed that the services are economically unified and indivisible. Rather, the complexity of the services must be assessed in accordance with the criteria laid down in the CJEU’s case law, and the principal and ancillary elements of the transaction must be identified based on the specific circumstances of the case. If it is established that the service can be broken down—not only artificially—into distinct supplies for VAT purposes, the arm’s length price for each distinct supply must be determined individually, under the VAT-specific definition of the fair market price. This determination must be made regardless of the fact that the service was invoiced by the parent company at a single, uniform price.

Full English text of the judgement

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