KPMG report: Transfer pricing implications of CJEU judgment on application of VAT to cross-border intra-group services

The Court of Justice of the European Union (CJEU) in September 2025 published its judgment on how value added tax (VAT) should be applied to EU cross-border intra-group services, when a transfer pricing adjustment has been made to the pricing of the service.

Facts of the case

A Belgian principal provided management services to a Romanian subsidiary that rented cranes. Under the group’s transfer pricing policy, the management services were priced to leave Romania with a fixed operating margin set using the transitional net margin method (TNMM).

In 2011 and 2012, the taxpayer applied the reverse-charge mechanism, with the Romanian subsidiary recording output VAT and reclaiming input VAT, leaving them net neutral. In 2013, the taxpayer took the position that the transaction was out of scope of VAT. The Romanian tax authorities challenged the company’s position, denying the reclaimed input VAT for the initial returns and imposing interest and penalties, on the basis that the taxpayer had not adequately demonstrated that the Belgian principal had actually provided services to the Romanian subsidiary.

The CJEU considered and ruled on two questions:

• The intra-group services, priced using the TNMM, provided from Belgium to Romania were in scope of VAT, which was inconsistent with the position the taxpayer had taken for 2013.
• Tax authorities can request documentation, in addition to the invoice, to prove that the services on which VAT is being reclaimed were actually performed.

KPMG observation

There are three key takeaways from this case:

• Intra-group services in the EU, including those set based on a fixed operating margin, are potentially in scope of VAT, and thus could be considered when structuring intra-group transactions.
• For most businesses that are subject to VAT, this is unlikely to have a financial impact if the transactions are supported by compliant VAT invoices, as the VAT charged on such services will be recoverable. However, this may not be the case for businesses that provide services that are exempt from VAT (e.g., financial services).
• Taxpayers may, in addition to compliant VAT invoices, need to provide documentation, such as transfer pricing documentation, to demonstrate that intra-group services have actually been provided and to reclaim the associated input VAT. Note that EU member states are moving towards mandatory government controlled e-invoicing, thus making it more likely that these transactions will be scrutinized by tax authorities.

For additional details on the VAT issues associated with the case, read TaxNewsFlash. The KPMG member firm in Belgium has also prepared reports on the VAT issues and transfer pricing issues.