Transfer pricing adjustments may be subject to VAT – CJEU judgment in Arcomet (C-726/23)
In its judgment of 4 September 2025 in Arcomet Towercranes (C-726/23), the Court of Justice of the European Union took a position on intra-group settlements between related companies. The CJEU ruled that the equalisation of operating margins between entities within the same group may constitute a supply of services for consideration and may therefore be subject to VAT if there is a direct link between the services provided and the remuneration transferred.
The judgment is an important reference point for capital groups, as it emphasises that the VAT implications of transfer pricing adjustments must be assessed on a case-by-case basis, taking into account the nature of the services, the calculation mechanism and the documentation available. This may lead to a change in the current approach, according to which TP adjustments were in many cases treated as VAT neutral.
Background to the Arcomet case (C-726/23)
The case concerned settlements between companies belonging to the same group – Arcomet Belgium (the parent company) and Arcomet Romania (the operating company), operating in the construction crane rental sector.
- The Belgian company was responsible for negotiating contracts with suppliers, central planning and management, and bearing the main economic risk associated with the activities carried out by the subsidiaries.
- The Romanian company was involved in the sale and rental of equipment on the local market.
There was an agreement between the companies that specified the acceptable level of profitability for Arcomet Romania (from –0.71% to 2.74%) and the method of compensation in the event that this range was exceeded. When the subsidiary’s profit was higher, Arcomet Belgium issued an invoice to it covering part of the surplus. Conversely, if the Romanian company’s margin fell below the agreed level, Arcomet Romania could issue an invoice to the Belgian company. In the years in question, the Romanian company’s profit exceeded the agreed threshold, so the Belgian head office issued invoices.
The Romanian tax authorities considered that these transactions were subject to VAT and questioned Arcomet Romania’s right to deduct input tax, arguing that insufficient evidence had been provided to prove that Arcomet Belgium had actually performed the services and that they had been used for taxable activities.
In the course of the proceedings, the national court referred questions to the CJEU for a preliminary ruling on whether:
- the transfer price adjustment invoiced by the parent company constitutes a supply of services for consideration within the meaning of Article 2(1)(c) of the VAT Directive, and
- the tax authority has the right to require additional documents confirming the existence and use of such services.
Key position of the CJEU
In considering the case, the Court found that, in the circumstances presented, there was a legal relationship between Arcomet Belgium and Arcomet Romania within which there could be an exchange of mutual services subject to VAT. The parent company performed a number of commercial, organisational and management activities for the subsidiary, thereby bearing the main economic risk associated with the group’s operations. In return for these activities, it received remuneration in the form of an annual settlement which, although it took the form of a profit adjustment, constituted payment for the services provided.
The Court pointed out that, in accordance with Article 2(1)(c) of the VAT Directive, a supply of services for consideration occurs when:
- there is a direct link between the service provided and the remuneration received, and
- the payment genuinely reflects the value of the services provided.
In the opinion of the CJEU, these conditions were met in the case in question because:
- the parties were bound by a contract providing for specific obligations and mutual settlements,
- the services provided by Arcomet Belgium brought measurable benefits to the Romanian company (savings, operational support, improved financial results),
- and the profit adjustment itself was closely related to these services and not to a neutral transfer pricing adjustment.
The CJEU also underlined that the variable nature of the remuneration – depending on the level of profitability achieved – does not preclude remuneration. The amount of the payment was determined according to predetermined criteria, which allowed it to be treated as part of the anticipated remuneration rather than as a subsequent technical adjustment of profitability.
Consequently, the Court ruled that remuneration for intra-group services calculated on the basis of a profitability adjustment may be subject to VAT if there is a direct link between the service and the payment. Transfer pricing adjustments are not automatically neutral for VAT purposes – their effects depend on the actual nature of the services and the provisions of the agreements between the entities.
Regarding to the right to deduct tax, the Court confirmed that an invoice alone does not always constitute sufficient proof of the performance of services. Tax authorities may request additional documents confirming:
- the actual performance of services by the contractor, and
- the use of those services for the purposes of the taxpayer’s taxable activities.
At the same time, the CJEU noted that such a request must be proportionate and must not lead to excessive formal requirements for taxpayers.
What this ruling means for Polish taxpayers
The CJEU ruling is significant not only for Romanian taxpayers, but also for capital groups operating in Poland. Until now, it has generally been accepted in domestic practice that transfer pricing adjustments are neutral for VAT purposes, provided that they do not affect the tax base of specific supplies of goods or services. In such cases, settlements were often documented with accounting notes rather than VAT invoices.
However, the Arcomet ruling shows that not every settlement referred to as a ‘TP adjustment’ can be considered neutral. If the documents and cooperation practices show that the payment between companies is related to specific services (such as management support, purchase negotiations or central planning), then this settlement should be treated as a paid service subject to VAT.
In practice, this means that existing intra-group settlement models will have to be reassessed. Taxpayers should check whether their annual margin adjustments include elements typical of service provision and whether the method of documenting these settlements has been correctly defined.
The CJEU ruling may also affect the current practice of tax authorities in Poland. In light of this ruling, it can be expected that the tax authorities will more frequently analyse whether TP adjustments do not in fact reflect paid services and will also require better documentary evidence confirming the actual performance of services.
The CJEU judgment of 4 September 2025 in Arcomet Towercranes SRL (C-726/23) confirms that transfer pricing adjustments may be subject to VAT if they correspond to payment for specific services. It is therefore crucial to assess each adjustment individually, taking into account the actual nature of the activities, the method of settlement and the available evidence of their performance.
In practice, it is worth analysing the agreements and settlement rules in force within the group, particularly with regard to the invoicing of management and operational support services. Common mistakes made by taxpayers include treating service settlements as ‘neutral’ TP adjustments, issuing accounting notes instead of VAT invoices, and lacking consistent evidence – such as reports, correspondence or activity schedules – confirming the actual performance of services.
The getsix® team of tax advisers supports companies in analysing intra-group settlements in terms of VAT and transfer pricing, helping to prepare the correct documentation and reduce tax risk.
Legal basis:
Judgment of the Court (First Chamber) of 4 September 2025 in case S.C. Arcomet Towercranes S.R.L.
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
If you have any questions regarding this topic or if you are in need for any additional information – please do not hesitate to contact us:
CUSTOMER RELATIONSHIPS DEPARTMENT
ELŻBIETA NARON
Head of Customer Relationships
Department / Senior Manager
getsix® Group
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