In this Q3 2025 edition of our VAT Quarterly Wrap-up, we address three VAT topics which kept the CJEU busy in the third quarter of 2025. Alongside these cases, we selected a number of developments relevant for companies active in EU Member States.

Featured CJEU Cases

1.Transfer Pricing Adjustments and VAT – Where Do We Stand Now? (CJEU C-808/23 Högkullen and C-726/23 Arcomet Towercranes)

Held (in essence)

Recent CJEU judgments have clarified the VAT treatment of intra-group transactions.

In Arcomet, the Court held that certain transfer pricing (TP) adjustments, specifically, those made under an existing intercompany arrangement with a fixed calculation mechanism, can qualify as consideration for a taxable supply. Notably, the Court ruled that profit-related or variable payments do not break the direct link for VAT when the contractual mechanism is clear.[1]

In Högkullen, the Court ruled that intra-group management services should not be treated as a single composite supply but rather as distinct, individual services.[2] In EU Member States that have implemented the open market value concept (the VAT equivalent of the arm’s length principle), each service must be valued separately for VAT purposes using the comparative method whenever possible, rather than aggregating them and valuing solely on a cost basis. This distinction reinforces the need for precise documentation and valuation of each intra-group service to properly align VAT and transfer pricing treatment.

Implications

For businesses, the rulings in Högkullen and Arcomet are significant, and have various implications:

• Uncertainty is not a barrier: Transfer pricing adjustments based on contractual frameworks reflecting actual services may constitute VAT taxable supplies, especially under TNMM models. Variable or profit-contingent payments do not automatically break the VAT link if the contractual mechanism is clear.
• Intra-group management services: Such services must be treated as distinct and separate for VAT purposes more quickly than anticipated, not as a single composite supply. This means individual determination of the VAT treatment and valuation using the comparative method in member states that implemented the open market value is required where possible, rather than a simple cost aggregation.
• TP methods versus VAT logic: A compliance gap exists since TP methods like TNMM aggregate profit at the entity level, whereas VAT requires proof of direct connection to identifiable supplies. Bridging these requirements demands comprehensive documentation.
• Cross-border complexity: Diverse VAT implementation of open market value in EU Member States challenges uniform compliance. Multinational businesses must carefully tailor intra-group service documentation, valuations, and agreements to meet varying national standards.

Actions to be taken

• Foster collaboration between VAT and transfer pricing teams to ensure robust documentation demonstrating or breaking the direct link between services and TP payments, depending on the specific situation. In particular, companies with a limited right to recover VAT (such as financial institutions) should reassess their historical VAT positions in the light of the Arcomet case in relation to TNMM or PSM transfer pricing models.
• Conduct granular, service-by-service valuations of intra-group management services to comply with Högkullen and mitigate risks related to VAT revaluation.

• Prepare for increased tax authority scrutiny by maintaining comprehensive contracts, benchmarking studies, service logs, and correspondence that substantiate both transfer pricing and VAT treatment across jurisdictions.

   

2.VAT on Incentive Schemes – Are Loyalty Points Vouchers? (CJEU C-436/24 Lyko Operations)

Held (in essence)

On September 11, 2025, Advocate General Kokott delivered her opinion in Skatteverket v. Lyko Operations AB (C-436/24), a reference from the Swedish Supreme Court concerning the VAT treatment of a certain customer loyalty program.[3] Lyko, a Swedish retailer of beauty products, planned to introduce a loyalty scheme under which customers earn points based on their purchases. These points could later be redeemed for products if customers made new purchases. Points were non-transferable and expired after two years. The question was whether such points should be treated as “vouchers” under Articles 30a and 30b of the VAT Directive 2006/112/EC, triggering the special rules on single and multi-purpose vouchers.[4]

AG concluded that the points in Lyko’s program do not constitute vouchers within the meaning of VAT Directive. Instead, they represent a mere price reduction on a future purchase. Her analysis highlighted that (i) in this case the points do not impose any obligation to supply a reward, but ‘only’ give the customer the right to a ‘more favorable’ additional purchase; and (ii) the conclusion would be different only if the points could be redeemed for a reward irrespective of another purchase. So, if the points would have granted an independent right to a specifiable reward, they would have to be regarded as vouchers instead.

As a result, according to the AG’s opinion these loyalty points should not be treated as vouchers but as conditional rebates, taxable only at redemption. It should be noted that once redeemed the VAT taxable amount of all the sales that generated the discount would be distributed, including the last purchase where the points are redeemed.

Implications

The AG’s approach provides welcome certainty regarding the conditions required to qualify as vouchers. From a legal certainty perspective, this clarity is valuable, as it prevents the voucher regime from being unduly extended to encompass all commercial loyalty schemes. Equally positive is the clear distinction drawn between these loyalty schemes and gifts, particularly in light of the Court’s conclusions in Kuwait Petroleum (C-48/97), which are expressly ruled out as deemed supplies in this context.

Actions to be taken

Unless the Court departs from the AG’s opinion, companies running loyalty schemes like this should treat these kinds of points as rebates rather than vouchers. VAT will only adjust when the points are redeemed, and unredeemed points will not reduce the VAT taxable base. This might be in benefit for those businesses which in practice issues discounts that are not redeemed (particularly on single-purpose vouchers).

Loyalty program contracts should be reviewed to avoid unintended voucher classification. Careful contractual drafting will be crucial to ensure they are not inadvertently categorized as vouchers with unintended VAT consequences. This is particularly relevant for the retail sector, but it could also apply to other industries such as pharmaceuticals, hospitality, energy, and telecommunications.

3.The Charter of Fundamental Rights as a General Procedural Safeguard in EU VAT Matters? (CJEU C-733/23 Beach and Bar Management and CJEU C-605/23 Ati-19)

Held (in essence)

The two recent judgments of the CJEU (C-733/23 Beach and Bar Management and CJEU C-605/23 ati-19) confirm that the national procedural autonomy in VAT cases is not unlimited. The EU Charter of Fundamental Rights sets binding minimum standards:

• Ati-19 (Art. 47 – effective judicial protection):
  A Bulgarian restaurant faced both a fine and a temporary business closure because an employee failed to issue a tax receipt. National law allowed for interim relief only under narrow conditions (proof of serious or irreparable harm), without reviewing the legality of the measure itself. The CJEU held this insufficient: effective judicial protection requires that national courts can at least summarily review the legality of the contested measure. Otherwise, remedies risk being meaningless if enforcement occurs before the final ruling.
• Beach and bar management (Art. 50 – ne bis in idem, and Art. 49 (3) – proportionality):
  Another Bulgarian case concerned 85 receipt-related violations, leading to relatively negligible tax loss each. However, each violation was individually punished with a fixed minimum fine of EUR 250. A temporary business closure was also imposed. The sanctions were imposed in concurrent and uncoordinated proceedings. The CJEU found this contrary to the Charter:
  • Both fines and closures qualify as “criminal in nature.”
  • Applying both without coordination breaches the ban of double punishment (ne bis in idem).
  • Mandatory minimum fines without judicial discretion violate proportionality, since penalties must be adjustable to circumstances.

Together, the cases demonstrate that the Charter directly influences VAT enforcement, even in areas not harmonized procedurally at EU level.

Implications

For businesses, these rulings are significant, and a welcome development, for a number of reasons:

1. Level playing field across the EU:
   Taxpayers can do businesses all over the EU resting assured that in relation to VAT, they can rely on the Charter’s guarantees, protecting them against prejudicial procedural acts under Member States’ laws. The most important guarantees include proportionality, ne bis in idem, and effective remedies in all Member States. This provides more predictability when operating cross-border.
2. Limits on harsh sanctions:
   Automatic minimum fines, rigid sanctions, or cumulative penalties without coordination are vulnerable to challenge. Businesses now have stronger grounds to contest disproportionate penalties in VAT cases.
3. Interim relief must be real, not illusory:
   If national law makes suspension of tax measures practically impossible, affected businesses can argue that this violates Art. 47 of the Charter. Courts must conduct a legality review before sanctions are enforced.
4. Shift in litigation strategies:
   Going forward, businesses can increasingly invoke the Charter in VAT disputes, alongside national constitutional guarantees. This is particularly relevant in Member States where tax authorities favor strict enforcement or where procedural avenues are restrictive.

Actions to be taken

Businesses facing penalties, assessments or the like in relation to VAT should explore their compatibility with the Charter, and challenge them accordingly if they are in violation thereof.
 

Other developments relevant for EU Member States

The Netherlands – Outsourced Payment Processing VAT Exempt

The Dutch Court of Appeal ruled that outsourced payment processing operations fall within the scope of the VAT exemption for payment services.[5] This is a landmark decision, as outsourcing these operations is typically considered subject to VAT (also in other Dutch court proceedings to date). It is expected that the Dutch tax authorities will appeal this decision and that the Dutch Supreme Court will have the final say on the matter.

Finland – VAT Recovery Transaction Costs in PE Investment Structure

The Finnish Supreme Administrative Court ruled that input VAT on acquisition costs in private equity structures is recoverable only to the extent the costs relate to the acquiring company’s taxable management activities, not investor-level decisions or upstream structuring. [6] Pro rata deduction is allowed for costs benefiting both the company and investors, requiring detailed invoice documentation and clear cost allocation. The case was sent back for reassessment consistent with these principles.

The Netherlands - Budget Day

On Tuesday, September 16, it was Budget Day in the Netherlands. Some of the most notable tax measures with an effective date of January 1, 2026 (when all formal procedures would be completed):

• The RETT rate for investment property that is ‘in nature fit for residential purposes’ at the time of acquisition will be reduced from 10.4% to 8%.[7]
• A VAT revision period of five years will be introduced for certain property related investment services (e.g., renovation, repair and maintenance) with an invoice amount of € 30,000 or more.[8]
• The VAT rate for short-stay accommodation (e.g., hotels and holiday parks) will be increased from 9% to 21%.[9]

Spain – VAT Assessments on Sales Where VAT Cannot Be Recharged to Clients

In its resolution of July 15, 2025 (00/07350/2024), the Spanish Central Tax Tribunal (TEAC) ruled that when a taxpayer has declared and invoiced transactions as VAT exempt (e.g., intra-EU supplies), but the Tax Administration later establishes that they were in fact taxable domestic supplies forming part of a fraudulent scheme, the VAT due is considered to be included in the amounts received (i.e., the sales were VAT-included). This is because the supplier cannot rectify invoices to recover the VAT from its customers - as Spanish VAT Law prohibits such adjustments where fraud is involved -.

The ruling is consistent with the case law of the CJEU (particularly on CB and TEAR Galicia, C-521/19,) and the Spanish Supreme Court, which had already clarified the same approach for hidden B2C sales: VAT is deemed included in the consideration.

In practice, this doctrine is particularly relevant where VAT cannot be passed on to the customer, whether because the purchaser is a final consumer, has disappeared, or has been liquidated without a successor—confirming that the liability remains with the supplier, but within the amounts already collected.

Germany – BMF Clarifies Mandatory E-Invoicing Requirements

On October 15, 2025, the German Ministry of Finance (BMF) published a revised guidance on mandatory electronic invoicing (eRechnung) under §14 UStG. The updated circular refines the definitions of structured formats, introduces a three-tier error classification (format, business rule, and content errors), and confirms the role of validation tools in determining invoice compliance. The guidance also integrates key elements from the February 2025 FAQ and amends the VAT Application Decree (UStAE) accordingly.

While the new rules provide welcome legal certainty, they also impose additional compliance obligations on businesses. In particular, companies must reassess their invoice formats, validation procedures, and archiving practices to ensure full alignment with the new standards.

A detailed Thought Leadership article by Alvarez & Marsal on the strategic and operational implications of the BMF guidance will be published shortly.

Austria/CJEU – New referral

The Austrian Federal Fiscal Court has referred to the CJEU important questions in relation to the Quick Fixes introduced in 2020:

1. Is the provision of a customer EU VAT ID (issued by another state than that of dispatch) a substantive requirement to zero-rate the intra-EU supply in the state of dispatch?
2. If (1) is affirmed: Can the recipient deduct the input tax if the supply is treated as taxable for want of a valid EU VAT ID?
3. Can the position be corrected (so to zero-rate the supply) if the recipient only later shares an EU VAT ID valid at the time of the supply?
4. If (3) is affirmed: Does such correction have retroactive effect?

Want to know more?

Our Global Indirect Tax team at Alvarez & Marsal is ready to help you evaluate your exposure and design a protective VAT strategy.