Holding Company VAT Recovery and Transfer Pricing Adjustments

A group acquires a business, pays the advisers, and prepares a management services agreement. At year-end, finance posts a charge to bring a subsidiary’s margin into its transfer pricing range. The acquisition VAT is reclaimed, and the adjustment is recorded as a management fee.

That sequence contains two assumptions: that the holding company can recover the acquisition VAT, and that the adjustment pays for management services. Each requires its own evidence. A transfer pricing calculation establishes neither.

The first installment examined branches, VAT groups and fixed establishments. This article considers holding company recovery and intercompany charges, including the distinction illustrated by Arcomet Towercranes and the May 2026 judgment in Stellantis Portugal.

Establish the holding company’s economic activity

A company that merely holds shares and receives dividends does not, through those activities alone, carry on an economic activity for VAT purposes. Providing genuine services to subsidiaries for consideration changes the analysis. HMRC’s VIT40100 describes that distinction.

In Larentia + Minerva and Marenave (C-108/14 and C-109/14), the CJEU treated acquisition-related expenditure of a holding company involved in managing its subsidiaries for remuneration as general expenditure of its economic activity. Deduction was available in principle, subject to restrictions for exempt transactions. Where the holding company manages only some subsidiaries, expenditure attributable to economic and non-economic activities requires an appropriate allocation.

Two different restrictions must therefore be distinguished. Costs used for passive investment activity fall outside the economic activity. Costs used within an economic activity that includes exempt supplies raise a partial exemption question. Exempt lending, for example, may affect recovery; receiving dividends does not itself require a restriction on qualifying management-business overheads.

For an acquisition, I would settle the intended operating model before the adviser invoices arrive: which company supplies the services, which subsidiaries receive them, what is charged, and when. An agreement prepared after completion may document a genuine earlier intention. It cannot manufacture that intention retrospectively.

Check who actually received the acquisition advice

Consider an illustrative structure: a parent instructs the advisers, a new acquisition vehicle buys the shares, and a third group company pays the bill. An invoice addressed to the acquisition vehicle does not resolve which entity received the advice.

HMRC’s VIT40600 examines contracting, use, invoicing and payment when identifying the recipient. It also requires evidence of an intention to make taxable supplies. VAT grouping does not automatically convert passive investment costs into deductible expenditure.

The practical review should start with engagement letters and the actual work commissioned. Where a vehicle is incorporated after an engagement begins, examine whether a genuine novation is needed and legally effective. Then reconcile the invoices with the services received. Redirecting an invoice for convenience is a poor substitute for that exercise.

Arcomet: a profit formula can remunerate a service

In Arcomet Towercranes (C-726/23), decided on September 4, 2025, a Belgian parent supplied contractually specified services to its Romanian subsidiary and assumed significant commercial risks. The subsidiary undertook to pay the portion of its operating margin exceeding 2.74%. The Court found that this remuneration constituted consideration for services within VAT’s scope.

The contractual exchange mattered. The use of an OECD transfer pricing method to calculate remuneration did not remove the direct link between the services and payment. The judgment does not make every adjustment a taxable management charge.

The Court also allowed the tax authority to request evidence beyond invoices to establish that services existed and were used for the recipient’s taxed transactions, provided the request was necessary and proportionate. An invoice and a margin calculation may establish the amount claimed without establishing what the subsidiary received.

Stellantis: a margin adjustment need not purchase a service

In Stellantis Portugal (C-603/24), decided on May 13, 2026, vehicle transfer prices were adjusted to secure an agreed resale margin. The calculation included repair costs incurred by the distributor.

The Court held that such adjustments did not constitute consideration for a separate service unless reciprocal commitments established a direct link between identifiable services and the remuneration. Including repair expenditure in the calculation did not, by itself, establish a repair service supplied to the manufacturers.

There was a further qualification. Paragraph 47 left national authorities to assess the taxable-base consequences if the adjustment instead changed the original vehicle purchase price. Absence of a separate service does not mean absence of all VAT consequences.

My reading of the two judgments is that the calculation follows the legal and commercial relationship. It does not replace it. A contract that guarantees a distributor’s margin needs a different VAT analysis from one that remunerates specified support services through a margin formula.

Classify the adjustment before selecting the VAT code

The starting questions are: what obligation creates the payment, and which transaction, if any, does it change? The resulting analysis can follow three routes.

The VAT Directive connects services for consideration, taxable amount and input deduction through Articles 2(1)(c), 73 and 168. For cross-border services within the general business-to-business rule, Article 44 generally places the supply where the customer is established, or at the receiving fixed establishment. Article 196 requires the customer’s reverse charge where the supplier is not established in the Member State concerned, subject to the applicable conditions. Identifying the receiving establishment and the nature of the service remains necessary.

On an ordinary cost-plus service arrangement, an adjustment from estimated to actual costs may change the consideration for the services already supplied. A distributor margin adjustment requires examination of its purchase-price mechanism. A tax-return-only adjustment requires a separate inquiry into whether the contractual consideration changed at all.

The UK position requires a separate check

Arcomet and Stellantis should inform an international group’s EU analysis. They do not automatically determine its UK treatment. Section 6 of the European Union (Withdrawal) Act 2018 addresses the status of later CJEU decisions in UK courts.

HMRC’s INTM486010 distinguishes direct tax adjustments and balancing payments from payments that constitute consideration, or further consideration, for supplies. VATVAL15800 illustrates why the link to management services matters.

There is a holding-company point to check particularly carefully: VIT40600 retains warnings about fees contingent on subsidiary profitability. Arcomet’s acceptance of its particular contractual arrangement should not be treated as approval of every profit-dependent management fee under UK guidance.

Practical implications for businesses

Before closing the year, build one file connecting the agreement, evidence of services, calculation, invoice and VAT treatment. HMRC’s VATVAL16000 likewise starts its assurance approach by identifying the transactions and their original indirect tax treatment.

My practical priority would be a short explanation that a finance manager can defend: who did what, who owed the money, and why this amount arose. Keep working papers and selected evidence of delivery behind it. If those answers cannot be reconciled with the transfer pricing file, resolve the discrepancy before posting the charge or claiming the VAT.