The Automotive Supply Chain's Tax Year

European automotive suppliers are preparing the fiscal year 2025 corporate income tax returns against a sector that no longer matches the assumptions underlying their existing tax positions. OEM pricing pressure, declining EV volumes, new tariffs disrupting supply chains, and supplier distress have compressed margins across the chain. Several tax-related issues are arriving at the same time: transfer pricing in challenging markets, interest deduction limitations on compressed EBITDA, and impairments interacting with Pillar Two. Each exists in other sectors. What is distinctive about automotive is that these are landing simultaneously.

Transfer pricing in a challenging market

Whether it is arm’s length for a group company to report a loss depends on what that company does and the risks it bears. Routine distributors and contract manufacturers are typically expected to earn a modest, relatively stable return on their activities. Only in exceptional circumstances that could not