The issue of settlements between related entities has long been one of the most frequently raised issues before the Court of Justice of the European Union, particularly in the context of the VAT treatment and consequences of such transactions. The judgment of 3 July 2025 in the Högkullen AB v Skatteverket case is another contribution to the ongoing discussion on the VAT treatment of transactions carried out within capital groups. We described the Advocate General's opinion in this case on our blog.

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As a reminder, the case concerned a parent company in a capital group which provided a number of support services to its subsidiaries, including business management, financial services, property management, investment services, IT services and personnel management services.

The key issue concerned the assessment of the nature of the services in the context of their impact on the determination of the taxable amount of the services. Högkullen argued that each service should be assessed separately because similar services could be purchased on the market. The Swedish tax authority took the opposite view, arguing that the active management of subsidiaries by a holding company constitutes a single complex service with no ‘equivalent’ on the market. Consequently, the authority decided that an alternative valuation method based on the total costs incurred by the company should be applied and, as a result, the tax base and the amount of tax payable should be reassessed.

The CJEU confirms the position of the Advocate General

The opinion of Advocate General Juliane Kokott of 6 March 2025 was the first indication of the direction the Court would take. Her position was clearly critical of the automatic treatment of holding services as a sui generis service with no market equivalent.

The Court adopted a similar view and shared this position – with regard to services provided by a holding company to its subsidiaries, the Court found that each of these services has its own original character and is not subordinate to another in terms of its purpose. This means that such a bundle of services cannot automatically be treated as a complex service. The Court pointed out that the fact that the parties applied a single price does not determine the nature of the transaction.

Consequently, the free market value of the services in question can be determined by comparison with the market prices of similar services, and it is not necessary to refer to an alternative method of determining value based on the total costs incurred.

What does this mean for tax practice?

The Högkullen judgment has important consequences and guidance for taxpayers and tax authorities. When considering the method of valuing transactions, it may also mean that it is more advantageous for taxpayers to determine the value of transactions using the comparative method rather than the cost method.

From a VAT perspective, for taxpayers who consider that individual management services should be treated as separate (and separately valued) supplies and that the effects of the transaction should be derived from this approach, the judgment may support their argument. It is worth remembering that in the case of the comparative method, the taxable amount is the price that an independent customer would pay for similar services on the market. In the case of the cost method, the taxable amount includes all costs incurred by the taxpayer in connection with the provision of services. As a rule, therefore, the comparative method may lead to a lower taxable amount.

At the same time, looking at the bigger picture, the analysed judgment shows a favourable trend in the Court's approach to the possibility for taxpayers to shape the terms of their transactions (which has an impact on the tax consequences).

Combined with the Opinion of the Advocate General, the judgment in the Högkullen case leads to a positive conclusion in the context of the risk of finding tax avoidance in the determination of the tax base and VAT due (which, as we recall, was significantly lower than the VAT deducted by the Company in the case in question).

Furthermore, the Court indirectly confirms its previously expressed favourable position (e.g. in the recent judgment in the Weatherford Atlas Gip case), according to which the tax authority is only entitled to verify whether a given service has actually been performed and whether that service is related to the taxable activities of the entity concerned (which is obvious in a situation where the transaction in question is not aimed at tax fraud or abuse).

On the one hand, questions remain unanswered, on the other hand, practical conclusions can be drawn

Although the judgment provides important clarifications, it also leaves some gaps, including on issues raised by the Advocate General in her opinion but not explicitly analysed by the CJEU in its judgment.

In particular, the Court did not address the Advocate General's assessment of the facts of the case in terms of the question of whether subsidiaries have different (i.e. limited) rights to deduct input tax, or the situation where no input tax was incurred on part of the costs incurred by the holding company.

What is crucial for taxpayers, however, is that this judgment reaffirms the importance of fulfilling the obligation to carefully document the actual nature of the services provided. In this context, it will not be sufficient to simply state that ‘separate services’ are provided; it will be necessary to describe in detail the nature of the cooperation in group agreements and to reflect these provisions in the evidence collected.

For capital groups providing intra-group services, the Högkullen judgment is another signal to review existing practices. The following will be key:

  • Detailed documentation of the nature of each service provided and purchased.
  • Business justification for the remuneration structure.
  • Preparing arguments in case the tax authorities question the approach taken.

Although the analysed judgment does not resolve all doubts, it once again confirms the direction towards a more nuanced and factual approach to the issue of intra-group settlements.

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