VAT and transfer pricing adjustments – implications of the Arcomet Towercranes decision

 The case offers a new perspective on the VAT treatment of certain TP adjustments. The decision further underlines the importance of transfer pricing documentation and related implications.

The CJEU clarified that TP adjustments may fall within the scope of VAT when they reflect remuneration for identifiable services provided under a contract. At the same time, the Court emphasised the importance of proper invoicing and the availability of supporting documentation to exercise the right to deduct VAT.

The case involved the Arcomet Group, a global player in the crane rental sector. Arcomet Belgium, the parent company, negotiated supplier terms for its subsidiaries, including Arcomet Romania. The sale and rental contracts for activity carried out in Romania were concluded by Arcomet Romania directly with its suppliers and customers.

A transfer pricing study conducted in 2010 indicated that the group’s subsidiaries should record an operating profit margin between –0.71% and 2.74%. To ensure compliance with this range, a contract was entered into between Arcomet Belgium and Arcomet Romania in 2012, the terms which provided that each party would carry out a certain number of services for the other for remuneration; Belgium would issue an annual adjustment invoice to Romania if profits exceeded 2.74% or Romania will issue an invoice to Belgium if its losses  go beyond -0.71%.

Between 2011 and 2013, Arcomet Romania recorded profits above the contractual threshold, and Arcomet Belgium issued three adjustment invoices without VAT. Arcomet Belgium treated all three invoices as payments for services, while Arcomet Romania accounted for reverse-charge VAT for the first two, but treated the third invoice as outside the scope of VAT.

Following a tax audit, the Romanian authorities denied the right to deduct input VAT, on the basis that Arcomet Romania had not demonstrated that the services invoiced had actually been supplied and were necessary for the purposes of Arcomet Romania’s taxable transactions.

The Bucharest Court of Appeal referred two key questions to the CJEU:

1. Can transfer pricing adjustments between affiliated entities amount to consideration for services and, consequently, fall within the scope of VAT?
2. If yes, are tax authorities entitled to require, in addition to the invoice, supporting documents justifying the use of the services purchased for the purposes of the recipient’s taxable transactions?

With regard to the first question, under the interpretation accepted until recently - developed notably in the CJEU’s judgment in Hamamatsu Photonics (C‑529/16) and in the working papers of the VAT Expert Group – transfer pricing adjustments were generally considered to fall outside the scope of VAT, provided they did not constitute consideration for specific supplies of goods or services. The focus was on the absence of a direct link between the adjustment and the original transactions, with such adjustments being regarded merely as mechanisms for aligning profits with market levels.

This approach was, however, nuanced in the Advocate General’s opinion in Arcomet Towercranes, which emphasised that the tax treatment must be assessed on a case-by-case basis, depending on the economic substance of the transaction. According to his view, adjustments that merely reflect a reallocation of profit without specific contractual obligations remain outside the scope of VAT. Conversely, adjustments that constitute remuneration for intra-group services, contractually agreed and linked to actual functions and assumed risks, must be treated as supplies of services subject to VAT.

The Court’s decision in September 2025 confirmed that transfer pricing adjustments calculated under the Transactional Net Margin Method (TNMM) may fall within the scope of VAT, when they reflect remuneration for services contractually undertaken by the parent company.

The Court also emphasised that such adjustments cannot be regarded as arbitrary, as they are determined based on forecasts, according to clear criteria, and it highlighted that the active involvement of the parent company in managing subsidiaries distinguishes it from a mere passive holding.

The case highlighted the importance of consistent treatment across all jurisdictions. From a VAT perspective, the same transfer pricing adjustment must be treated consistently by both parties to avoid situations where, in one Member State, it is regarded as a mere profit adjustment while, in another, it is considered a supply of services.

As regards the second question, the Court confirmed that tax authorities may require taxpayers to submit documents other than a VAT invoice to prove that the service was supplied and used for the purposes of the recipient’s taxable transactions, but only provided the submission of that evidence is necessary and proportionate for that purpose. This ruling emphasizes the importance of transfer pricing documentation detailing value creation with robust FAR (functions, assets, risks) analysis and meeting other transfer pricing tests for services to be at arm’s length, such as the benefit test and the test of evidence.

An important aspect of the Arcomet case is that the adjustments were calculated using the TNMM method. At this stage, it remains unclear whether the same reasoning would apply to other transfer pricing methods. In practice, different contractual arrangements and remuneration models may be agreed between parties. This will require each case to be assessed individually to determine whether a transfer pricing adjustment constitutes a mere profit reallocation or consideration for services falling within the scope of VAT.  Also, it would be interesting to observe the implications in cases of reversal of transfer pricing adjustments, where the Romanian entity suffers losses and issues an invoice to the Belgian entity. The Arcomet case underscores that transfer pricing revisions extend beyond mere internal accounting adjustments and they can trigger taxable outcomes with substantial practical ramifications.

Clients should review inter-group agreements to assess VAT implications of TP clauses, with particular focus on year-end adjustments, ensure consistent VAT treatment across all jurisdictions and maintain robust documentation and evidence of services rendered to support input VAT deduction.