Opinion of the Advocate General in Case C-726/23 SC Arcomet Towercranes SRL (3 April 2025)

On 3 April 2025, the Advocate General (AG) of the European Court of Justice delivered his opinion in Case C-726/23, SC Arcomet Towercranes SRL. The case concerns the VAT treatment of transfer pricing adjustments between related companies, specifically transactions between a Romanian group entity and its Belgian head office, where the transfer price was calculated according to the transactional net margin method, one of the Organisation for Economic Co-operation and Development (OECD)-recommended transfer pricing methods.

SC Arcomet Towercranes SRL (hereinafter “Arcomet Romania”), part of a global crane rental group, was involved in a dispute with the Romanian tax authorities regarding the VAT treatment on invoices it received from its Belgian head office Arcomet Service NV (hereinafter  “Arcomet Belgium”). In December 2010, a transfer pricing study was carried out, setting a margin range for the Romanian entity. When the profit margin exceeded this range, the Belgian head office issued three invoices to adjust the margins. The Romanian entity declared the first two invoices under the reverse charge mechanism as an intra-Community acquisition of services, but considered the third invoice as outside the scope for VAT. The Romanian tax authorities denied the VAT deduction, stating that, because no evidence was provided, it was not proven that the services were actually rendered or necessary.

The main question before the Court of Justice is whether the amount billed by one company to a related company, calculated according to the OECD margin principles to align profit with performed activities and assumed risks, should be treated as payment for a service and thus fall within the scope of VAT.

With respect to the above question, the AG stated that the VAT treatment of transfer pricing adjustments must be assessed on a case-by-case basis. In this specific case, based on the agreement between parties, services were being rendered by the Belgian head office to the Romanian entity (e.g. prospection services, contract negotiation services, etc.) and a methodology for determining the remuneration was outlined. Moreover, the AG is of the opinion that there was a direct link between the services rendered and the remuneration received, as the amount of the remuneration could be determined from the moment the agreement was concluded. The fact that the exact amount was not specified at that time or the fact that in case the profit margin of the Romanian entity would be below the agreed threshold the invoice would have to be issued by the Romanian entity to the Belgian head office, have, according to the AG, no impact on this analysis. The AG concluded that the transfer pricing adjustment, calculated using the transactional net margin method, is considered a payment for a service and thus falls within the scope of VAT.

The VAT treatment of transfer pricing adjustments has been a hot topic for many years with little to no guidance provided by tax authorities and a lack of relevant case law. The opinion of the AG was therefore highly anticipated. It remains to be seen whether the European Court of Justice follows the opinion of the AG and whether this will be a trigger for the tax authorities in the various EU Member States to take a clear position. One should be realistic however: the VAT treatment of transfer pricing adjustments will always be very fact dependent with no ‘one-size-fits-all’ solution.