Important development in the VAT treatment of Transfer Pricing Adjustments

 
On 4 September 2025, the Court of Justice of the European Union (CJEU) issued its decision in the Arcomet Towercranes case (C-726/23). The case addresses the VAT treatment of transfer pricing (TP) adjustments charged by a principal company to an operating subsidiary, as well as the level of supporting documentation required to secure input VAT deduction.

The CJEU ruled that the charges made to ensure the operating company’s profit margin falls within the arm’s length range are within the scope of VAT, as they are considered remuneration for services. The CJEU also ruled that the tax authorities may request additional evidence if necessary to verify that the services were actually supplied and used for the operating company’s taxable activities.
 

Case background

Arcomet Belgium (the parent company) acted as the non-trading principal, responsible for strategy, supplier negotiations, and risk management for its subsidiary, Arcomet Romania, which rented and sold cranes to customers.

Based on a TP study, Arcomet Romania’s profit margin was benchmarked to an arm’s-length range. Surplus profits were offset by “equalisation invoices” issued by Arcomet Belgium, initially without VAT, in line with the group’s TP policy.

The Romanian tax authorities challenged the VAT treatment of these invoices. They denied input VAT recovery on certain invoices and reclassified one adjustment as an intra-Community service subject to VAT, without granting a deduction due to insufficient supporting documentation.

The Romanian court sought clarification on (i) whether such TP adjustments are payments for services within the scope of VAT, and (ii) the extent of documentation required to justify VAT recovery.

Questions submitted to the Court

The Court of Appeal in Bucharest referred two questions to the CJEU:

1. Whether the amounts invoiced by the principal to its associated sales and rental company should be treated as payment for services, and therefore fall within the scope of VAT.
2. What level of documentation (e.g. invoices, activity reports) is required to establish a direct link between the services received and the taxable person’s economic activity.

In his opinion, the Advocate-General (AG) confirmed that such invoiced amounts represent remuneration for services subject to VAT. On documentation, the AG considered that Member States may impose additional but proportionate requirements to substantiate the right to VAT recovery on intragroup services.

CJEU’s considerations

Intragroup remuneration

The CJEU followed the Advocate-General’s opinion, ruling that charges made to align Arcomet Romania’s profit margin with the arm’s-length range fall within the scope of VAT, as they represent remuneration for services. In reaching this conclusion, the Court highlighted the following points:

• Under the agreement between the parties, Arcomet Belgium undertook to provide commercial services and assume the main economic risks of Arcomet Romania’s operations, while Arcomet Romania agreed to pay amounts linked to any profit margin exceeding a defined threshold. This arrangement established a legal relationship with reciprocal commitments between service provider and recipient.
• The payments, that were made under a contract, represent actual consideration for the services provided, delivering a specific benefit to Arcomet Romania by improving its operating margin through cost savings and enhanced services to end customers.
• Arcomet Belgium’s activities went beyond passive shareholding, involving active management and commercial services that qualified as economic activities subject to VAT.
• The fact that remuneration was variable, depending on profits, did not make it voluntary, uncertain, or outside the scope of VAT.

Supporting documentation

On the second question, the CJEU confirmed the Advocate-General’s opinion. The right to deduct VAT depends on meeting both substantive and formal requirements. Tax authorities cannot deny VAT solely because of invoice formalities if sufficient information exists to satisfy the substantive conditions.

Authorities may request additional, proportionate evidence to verify that services were supplied and used for taxable activities, but they cannot require proof of the economic necessity or appropriateness of the services.

Significance of the decision

This judgment has been highly anticipated, as official guidance on the VAT treatment of transfer pricing adjustments has been limited. While the decision provides greater clarity for groups with similar intragroup TP arrangements, it may also spark broader discussions on the VAT implications of TP models.

Companies are advised to review their TP policies and VAT treatment to ensure alignment with the latest legal interpretations and to identify any potential gaps. Even for arrangements that differ from the Arcomet case, a review is recommended. Robust TP documentation is particularly important, as it not only supports TP compliance but also demonstrates that services are used for taxable transactions.

In light of the above developments its important to review the VAT impact and address any possible risks in relation to any transfer pricing arrangements which are in place. For example, 

• Are current transfer pricing agreements being treated as outside the scope of VAT and if so is this compliant?
• Are there transfer pricing contracts in place which could be considered as a supply of services/goods for consideration?
• Do transfer pricing invoices contain sufficient descriptions of underlying suppliers and is supporting documentation in place to substantiate the recovery of input VAT.
   

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