VAT on TP adjustments – Advocate General gives opinion in the case of SC Arcomet Towercranes SRL (C-726/23)
On April 3, 2025, the Advocate General of the Court of Justice of the European Union (“CJEU“) issued an opinion in case C-726/23 (SC Arcomet Towercranes SRL) concerning the VAT on transfer pricing adjustments in intra-group transactions.
Background to the case
The case concerns arrangements between Arcomet Romania and its Belgian parent company, whereby the subsidiary was contractually guaranteed a certain level of profitability. In case of deviations from the agreed operating margin, compensatory invoices were issued.
The issue is whether – and under what circumstances – a transfer pricing adjustment can be considered a supply of services for consideration and what conditions the taxpayer must fulfil in order to effectively exercise the right to deduct input tax.
Preliminary questions
The Bucharest Court of Appeal referred the following questions to the CJEU
- Can the adjustment of profitability resulting from the alignment of profit and the risk incurred (according to the net transaction margin method) be considered as constituting a payment for a service falling within the scope of VAT?
- Can the right to deduct VAT be made subject to the presentation of additional documents confirming the link between the service and the taxable activity?
Opinion of the Advocate General
The Advocate’s opinion provides important guidance on the classification of transfer pricing adjustments for VAT purposes and the scope of the taxpayer’s documentation obligations:
- remuneration for intra-group services, specifically defined in the contract and accounted for using the net transaction margin method (in accordance with the OECD guidelines), constitutes a consideration in the context of a supply of services for consideration and is therefore subject to VAT;
- the tax authorities may require the taxpayer to provide, in addition to the invoice, other documents to demonstrate the link between the services received and taxable activities, provided that this is proportionate and justified by evidence.
Significance for practice
Although the Advocates General’s opinions are not formally binding, in practice they form the basis for later rulings by the CJEU. Therefore, from a taxpayer’s perspective, the opinion in the Arcomet case can be seen as a useful interpretative signal on the issue of taxation of transfer pricing adjustments and documentation of the right to deduct input VAT.
The opinion indicates the possible direction in which the character of invoices documenting transfer pricing adjustments can be considered. In a situation where the rules for making adjustments are precisely defined in the contract binding the related parties – which could indicate clearly established terms of remuneration – and where the net transaction margin method is used as a means of verifying the transfer price, it is possible that invoices related to transfer pricing adjustments will be subject to VAT.
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