EU case law provides greater legal certainty

In the European Union, the Court of Justice of the European Union (CJEU) has delivered long-awaited clarity on the VAT treatment of intragroup transfer pricing adjustments. The Stellantis decision confirms that year-end pricing adjustments do not automatically constitute consideration for services unless a reciprocal legal relationship exists.

The ruling provides welcome certainty for groups using commercial pricing models while underscoring the need for precise documentation where operational activities intersect with transfer pricing mechanisms.

A stronger focus on economic substance

Luxembourg’s Administrative Tribunal has adopted a similarly substance-driven approach, ruling that an undisclosed counter-guarantee may give rise to a transfer pricing adjustment, but only up to an arm’s length guarantee fee.

The tribunal rejected attempts to reallocate the full financing return without evidence that the guarantor performed or controlled the underlying financing function. The decision reinforces the importance of transparency and accurate functional analysis in intragroup financial arrangements.

Italy’s Supreme Court has also examined the application of transfer pricing rules to intragroup financial transactions, particularly where guarantees are granted without explicit remuneration.

Stricter documentation requirements worldwide

Significant developments are also taking place outside Europe. Australia's tax authorities have substantially updated their guidance for inbound distributors, while New Zealand’s Inland Revenue has tightened its expectations regarding transfer pricing documentation.

Although New Zealand has not introduced a new filing obligation, the revised guidance reflects a more assertive enforcement approach. Greater emphasis is placed on localising functional analyses, ensuring documentation reflects New Zealand-specific facts, and recognising that inadequate documentation is increasingly likely to result in penalties.

As a result, maintaining contemporaneous and jurisdiction-specific transfer pricing documentation has become even more important.

Supply chain disruption continues to reshape transfer pricing

These jurisdiction-specific developments are unfolding against a backdrop of ongoing global supply chain disruption, fundamentally reshaping transfer pricing considerations for multinational enterprise (MNE) groups, including those operating in or through the United Arab Emirates (UAE).

Geopolitical tensions, inflationary pressures and logistical constraints have raised important questions regarding the allocation of extraordinary costs, risks and operational responsibilities across multinational groups.

UAE entities, often structured as regional headquarters, procurement hubs or limited-risk distributors, are facing increased scrutiny over the treatment of abnormal freight and logistics costs, the accuracy of functional and risk profiles, the reliability of benchmarking analyses, and the justification for reduced margins or losses.

The introduction of the UAE corporate tax regime, aligned with OECD standards, further reinforces the need for robust transfer pricing documentation, updated intercompany agreements and careful assessment of potential permanent establishment (PE) risks arising from workforce displacement and changes in operational control.