CJEU on VAT treatment of transfer pricing adjustments

On 4 September 2025, the Court of Justice of the European Union (CJEU) delivered its judgment in Case C-726/23, involving SC Arcomet Towercranes SRL. The case centres on the VAT treatment of transfer pricing adjustments between a Romanian group entity and its Belgian head office. The Court ruled that non-transactional profit adjustments arising from intra-group arrangements, calculated using the transactional net margin method (TNMM), fall within the scope of VAT. Additionally, the CJEU clarified that tax authorities can require supplementary documentation, beyond invoices, to substantiate the right to deduct input VAT.

SC Arcomet Towercranes SRL (“Arcomet Romania”) is part of the international Arcomet Group, which operates in the crane rental and sale sector. The group’s Belgian parent company, Arcomet Service NV (“Arcomet Belgium”), is a.o. responsible for sourcing suppliers and negotiating contractual terms for its subsidiaries, including Arcomet Romania, while the Romanian entity purchases or rents cranes to resell or rent them to local customers. Following a transfer pricing study in 2010, whereby a profit margin range was set for the Romanian entity, the Belgian head office issued three invoices in 2011-2013 to adjust profits. The TNMM was used, one of the OECD-recommended transfer pricing methods. The Romanian entity declared the first two invoices as intra-Community acquisitions of services, subject to VAT under the reverse charge mechanism, but considered the third invoice as outside the scope of VAT. The Romanian tax authorities denied the right to deduct input VAT, stating that, because no evidence was provided, it was not proven that the services were actually rendered or necessary. 

Thereupon two questions were referred to the CJEU, the main question being 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. The second question relates to the additional documentation, beyond standard invoices, tax authorities can request, justifying the right to deduct VAT (e.g. activity reports).

Related to the first question, the Court states that the Belgian head office supplied support services to the Romanian subsidiary, for which a remuneration is paid by the Romanian entity. Hence, there is a direct link between the services rendered and the remuneration received. Furthermore, the Court adds that the «remuneration is neither voluntary nor uncertain, nor is the amount thereof difficult to quantify». Regarding the second question, the CJEU clarified that tax authorities can request additional documents, apart from the invoice, to verify whether the services were actually supplied and used for taxable transactions, as long as the evidence requested is necessary and proportionate. The Court hereby also follows the AG’s opinion with respect to both questions. 

The Court’s ruling with respect to the first question is particularly relevant to practice, as it confirms that transfer pricing adjustments should also be considered from a VAT perspective. The judgment provides a more concrete framework for TNMM agreements but leaves open questions for other profit-based transfer pricing arrangements. One thing is clear, however: regardless of the agreement or method used, it will remain a case-by-case assessment with no ‘one-fits-all’ solution.

Companies are nonetheless encouraged to verify whether their current transfer pricing set-up is compliant, as potentially the local authorities will integrate this topic in future audits. 

With respect to the second question, companies should ensure that both formal and material conditions to deduct VAT are met. In practice, such details often seem to not appear (in sufficient detail) on invoices, especially for intra-group invoices supplying services.