On 4 September 2025, the Court of Justice of the European Union (‘CJEU’) passed judgment in a case concerning the interplay of VAT and transfer pricing adjustments. This case may well have far-reaching tax consequences for intra-group TP corrections.
Our experts discuss the Arcomet judgment and its implications for the VAT treatment of intra-group services and transfer pricing adjustments.
VAT deduction?
The case concerns the levy of VAT on intragroup services. Shortly put, the facts are as follows. Arcomet Romania, part of the global Arcomet Group, rents and sells cranes in Romania. Under an intercompany contract concluded in 2012, Arcomet Romania handled local purchases, sales, and rentals, while Arcomet Service NV Belgium (‘Arcomet Belgium’) assumed key operational responsibilities (such as strategy, planning, financing, engineering, fleet, and quality management) and economic risks. Under the transactional net margin method of transfer pricing (‘TNMM’), Arcomet Romania’s acceptable operating profit margin was set between -0.71% and 2.74%. The contract required annual settlement to align Romania’s profit margin with the transfer pricing range, with invoices issued when the actual margins fell outside of the range. Between 2011 and 2013, Arcomet Romania’s margins exceeded the range, and Arcomet Belgium issued invoices for the surplus. Romania initially applied the VAT reverse charge but later treated one invoice as being outside the scope of VAT. Following inspection, the Romanian tax authorities denied VAT deduction, citing insufficient proof that the services that were invoiced had actually been supplied. Arcomet Romania challenged this decision. The national court referred the case to the CJEU, asking whether the remuneration in respect of intra-group services constitutes the consideration for a supply of services that falls within the scope of VAT.
CJEU: transfer pricing adjustments within scope of VAT
The CJEU previously ruled that a supply of services is subject to VAT, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance. There must be a direct link between the service supplied and the consideration received.
In the case at hand, both Arcomet Belgium and Arcomet Romania entered into reciprocal commitments on the basis of a legal relationship (i.e. the 2012 contract). Also, the TNMM transfer price is capable of constituting the actual consideration for the services supplied. Even though the uncertain nature of any payments may break their direct link with the services, this is not the case here; the remuneration paid by Arcomet Romania merely depends on the existence of a positive operating profit margin. It is therefore variable, but not voluntary, uncertain or non-quantifiable. As a result, the payments are the consideration for a supply of services falling within the scope of VAT.
Finally, in the context of VAT deduction, the CJEU permits tax authorities to demand additional evidence of the existence and use of the services by the taxable person.
Is VAT always due on transfer pricing adjustments?
In our view, the implication of the CJEU judgment is not that every transfer pricing adjustment now automatically falls within the scope of VAT. In the case at hand, the parties had contractually agreed on their reciprocal services, and on the fact that the transfer pricing adjustments served as consideration (payments) for these services.
In situations where this is not the case, transfer price adjustments may still fall outside the scope of VAT, depending on the circumstances. This may for example be the case when adjustments are imposed by tax authorities and do not form the contractually agreed consideration for specific services. In such cases, there is often no direct link between the supplied services and the payments received in return.
No consistent rules (yet)
This judgment is a new step in the broader debate on the interaction between transfer pricing and VAT. Other cases have already been decided upon by the CJEU, and more are on the way.
For now, the VAT treatment of transfer pricing remains dependent on the specific (contractual) circumstances of each individual case. Given the absence of a clear and consistent set of rules, multinational enterprises should carefully assess the potential VAT implications of TP adjustments and intra-group transactions.
If you would like to discuss what this case may mean for your VAT position, please contact Marisa Hut or Stevie Mols.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
