Between Profit and Transaction: The Evolution of the Direct Link Doctrine in EU VAT Treatment of Transfer Pricing Adjustments

Abstract

This thesis examines how recent CJEU case law is reshaping the "direct link" requirement in EU VAT law to accommodate transfer pricing adjustments made by multinational enterprises. The analysis centres on Arcomet Towercranes (C-726/23), where the Court accepted that a profit-based TNMM adjustment can be consideration for a taxable supply of services, and the pending Stellantis Portugal (C-603/24), where Advocate General Kokott proposes a different approach for goods. Using a legal-dogmatic method, the thesis analyses three tensions: the doctrinal conflict between profit-based adjustments and VAT's transactional direct link test, the potential asymmetry between the treatment of services and goods depending on how the Court rules in Stellantis Portugal, and the implications for legal certainty and fiscal neutrality. The analysis concludes that the direct link doctrine has been substantially reshaped for services, while the treatment of goods remains uncertain. If the Court follows the Advocate General's reasoning, a bifurcated regime would arise that, while doctrinally coherent, could create compliance asymmetries requiring legislative intervention.