Value added tax for transfer pricing adjustments

The issue of retrospective adjustment of transfer prices has been discussed for many years, both in VAT and customs (see ECJ, ruling of 15 May 2025 - C-782/23; ECJ, ruling of 20 December 2017 - C- 529/16 - Hamamatsu; BFH, ruling of 17 May 2022 - VII R 2/19; and Munich tax court, ruling of 27 October 2022 - 14 K 588/20, appeal pending at the BFH under VII R 36/22). The aforementioned ECJ ruling of 15 May 2025 on customs should provide a little more clarity here, as the ECJ referred to the possibility of a simplified customs declaration as a solution for subsequent price adjustments.

The following judgement on the transfer pricing adjustment relates to VAT.

Facts of the case

Arcomet Romania is part of the Arcomet Group, which operates in the crane hire sector. The Belgian parent company assumes the role of principal, develops the strategic direction, manages and monitors the main risks and handles both the awarding of contracts and negotiations with suppliers on behalf of the Romanian company. Arcomet Romania procures cranes by purchase or hire and then offers them to its customers for hire or purchase. A contract was concluded between the parties that defines these services and a margin calculated according to the net margin method recommended by the OECD. If the defined net margin (-0.71 per cent to 2.74 per cent) was exceeded, Acromet Romania was obliged to make a compensation payment to Arcomet Belgium. If the margin was undershot, Arcomet Belgium was in turn required to make a compensation payment to Arcomet Romania. The net margin was exceeded in each of the years in dispute.

From the reasons for the decision

1) Article 112(2)(1)(c) of the VAT Directive is to be interpreted as meaning that the remuneration for intra-group services provided by a parent company to its subsidiary and listed in detail in the contract. c of the VAT Directive must be interpreted as meaning that the remuneration for the intra-group services provided by a parent company to its subsidiary and specified in detail in the contract, which is calculated in accordance with a method recommended in the transfer pricing guidelines adopted by the OECD and corresponds to the part of the profit margin achieved by the subsidiary that exceeds 2.74 per cent, constitutes the consideration for a service provided for consideration that falls within the scope of VAT.

2) Articles 168 and 178 of the VAT Directive

Directive must be interpreted as meaning that they do not prevent the tax authorities from requiring a taxable person claiming a deduction to produce documents other than the invoice in order to prove the existence of the services listed on an invoice and their use for the purposes of the taxable transactions of that taxable person, provided that the production of such evidence is necessary and proportionate for those purposes.

In its judgement, the ECJ pointed out in particular that mutual obligations had been entered into between the parties involved. This was based on the fact that the parent company had undertaken to provide a number of commercial services and that the subsidiary had to pay an amount equivalent to the portion of the profit margin it had generated that exceeded 2.74 per cent at the end of each year.

The remuneration also constituted the actual consideration for the service provided to the recipient. The fact that the remuneration was calculated on the basis of a method recommended by the OECD in order to comply with the arm's length principle for transfer prices was not detrimental. Furthermore, the parent company's activities cannot be compared with the activities of a pure holding company, but rather intervenes in the management of the subsidiary with these services, so that there is no starting point for non-taxability here either.

Please note:

This judgement on transfer pricing in VAT follows two other judgements on the subject. Back in December 2024, the ECJ ruled (judgement of 12 December 2024 Weatherford Atlas, C-527/23) on group allocation services, albeit without addressing the issue of transfer prices and the relationship between the company and the shareholder. In the ruling of 3 July 2025, the ECJ had to decide whether all services provided by a parent company to its subsidiaries were to be regarded as a single service for which there was no comparable offer on the market. This would have meant that the service would have had to be valued at the "normal value" and the actual costs, including so-called shareholder costs. However, the ECJ came to the conclusion that the services in question in the areas of company management, business, property management, investments, IT and personnel management had a separate, separable character. The ECJ then demanded an examination of whether the individual services each have an independent economic content and are therefore accessible to a separate market value determination. In the opinion of the court, a blanket assumption of an inseparable overall service was inadmissible. The tax authorities were thus thwarted in their plan to generate additional VAT revenue by combining a bundle of independent services into a single service and, associated with this, including overheads in the tax base.

The ECJ's opinion must be taken into account when implementing Section 10 (5) UStG in Germany. The current ECJ ruling from 4 September 2025, Arcomet Towercranes, concludes, as was to be expected following the Advocate General's opinion from April of this year, that transfer pricing adjustments cannot be applied across the board, but rather that a case-by-case assessment is always required. In the case in dispute, the ECJ initially confirmed an exchange of services between the parties involved, as Arcomet had contractually agreed to provide services and assume economic risks of the subsidiary, for which Arcomet had to pay a margin-dependent remuneration. According to the ECJ, the underlying OECD method for the remuneration of services based on the business case-related net margin method should not contradict this. If a service is provided for consideration, even if a transfer price has been determined between two companies belonging to the same group in accordance with a method recommended in the OECD guidelines for the purposes of direct taxation in order to comply with the arm's length principle, this transfer price can represent the actual equivalent value of a service provided (para. 41).

In this context, reference should be made to the VAT Expert Group's discussion paper of 18 April 2018, which basically considered three conceivable approaches to transfer pricing to be possible. Namely, treatment as a non-VATable profit adjustment, treatment as a remuneration adjustment for previously performed transactions and treatment as remuneration for an independent service (taxud.c.1 (2018) 2326098 - EN). The judgement of 4 September 2025 contributes to clarity, as it shows once again that intercompany agreements should be clearly formulated, especially with regard to the description of the service and the consideration to be provided. Documentation that the services have actually been provided is also required. Transfer pricing guidelines should therefore always take VAT and customs law aspects into account.

Please note: In this case, the ECJ only had to judge the case of a payment by the parent company to its subsidiary. However, it has not yet been clarified how the case would be assessed if the payment obligation and thus, logically, the direction of performance were actually reversed.

Reference should also be made to the recently published BFH decision of 30 April 2025, XI R 15/23, which relates to transfer pricing. The BFH stated the following:

"1. commercial and business letters within the meaning of Section 147 (1) No. 2 and No. 3 of the German Fiscal Code (AO) can also be e-mails.

2. (Digital) documents on group transfer prices fall within the scope of application of Section 147 para. 1 no. 5 AO.

3. the tax authorities are generally authorised to request all tax-related emails from the taxpayer as part of the external audit.

4. however, in the absence of a legal basis, the tax authorities are not permitted to demand a so-called overall journal, which on the one hand would still have to be created and on the other hand also contains information on e-mails that are not tax-related."