ECJ Confirms VAT Applies to Transfer Pricing Adjustments Provided Certain Conditions Are Met Case-726/23 (Arcomet Towercranes)

The European Court of Justice has confirmed that transfer pricing adjustments related to intra-group services paid by an operating company to a principal company are subject to VAT, provided that the services and payments are contractually agreed.

ECJ issued the judgement on September 4, 2025 in case C‑726/23 regarding the VAT treatment of transfer pricing adjustments on intra-group services and the required evidence to substantiate VAT deductions.  

The question that was raised to the ECJ concerned whether transfer pricing adjustments for intra-group services made to ensure associated company’s arm’s length compliance for transfer pricing purposes fall within the scope of VAT under Article 2(1)(c) of the EU VAT Directive. Additionally, a second question was assigned to ECJ to clarify whether tax authorities have the right to request supplementary documentation to substantiate that the services acquired are being used for the taxable activities of the purchaser under Articles 168 and 178 of the Directive.

The VAT Expert Group has previously suggested[1] that TP adjustments should be treated as outside the scope of VAT where both parties have a full right to recover input VAT. However, the Arcomet Towercranes case introduces a different approach by showing that services provided to a group company and risk-sharing will constitute a consideration for supplies and transform TP adjustments into VAT-relevant transactions.

Background:

The case involved a Romanian subsidiary, SC Arcomet Towercranes SRL (“Arcomet Romania”), of the Belgium company Arcomet Service NV (“Arcomet Belgium”), both part of a multinational crane rental group. Arcomet Belgium provided commercial services to Arcomet Romania such as such as strategy and planning, negotiating framework contracts with third-party suppliers, negotiating the terms and conditions of financing contracts, engineering, finance, crane fleet management at central level, and quality and safety management. Arcomet Romania then purchased cranes from the suppliers negotiated by Arcomet Belgium and subsequently sold or rented them to customers in Romania.

An intra-group agreement was concluded between Arcomet Belgium and Arcomet Romania, under which each party agreed to carry out these services for the other. According to the agreement, in addition to providing these commercial services, Arcomet Belgium bore the economic risk associated with the purchase, sale and rental activity of Arcomet Romania. To reflect the nature of the activities performed and the risks assumed by Arcomet Romania, the parties agreed on a level of remuneration that placed the company in a position consistent with those functions and risks. An annual invoice (i.e. the TP adjustment) was issued by the other party if Arcomet Romania’s profit margin exceeded or fell below the arm’s length range to correct for excess profit or loss.

Between 2011 and 2013, Arcomet Romania exceeded the arm’s length range, resulting at the end of each year a TP adjustment invoice issued by Arcomet Belgium to Arcomet Romania. The invoices were issued without VAT. Arcomet Romania applied the reverse charge mechanism for the first two invoices but considered the third to be out of scope of VAT. The Romanian Tax Authorities denied the VAT deduction claimed by Arcomet Romania, arguing that no services were performed for consideration.

AG Opinion and ECJ judgement:

The ECJ considered that there was a direct link between the supply and the consideration based on the fact that Arcomet Belgium agreed to provide commercial services and to bear the main economic risks associated with the activity of Arcomet Romania and where Arcomet Romania agreed to pay a corresponding amount to Arcomet Belgium if it’s profit margin exceeded the arm’s length range. The Arcomet Belgium services were deemed to positively impact Arcomet Romania’s operating profit margin and therefore the condition of supply of actual services was considered to be satisfied.

The ECJ rejected the argument that the remuneration paid to Arcomet Belgium was merely a TP adjustment intended to align Arcomet Romania’s profit margin with the OECD’s arm’s length principle. It highlighted that, when assessing whether a supply of services for consideration exists, all concrete aspects of the transaction must be taken into account. If there are indications that services were actually provided, the TP adjustment can constitute genuine consideration for those services, despite being made in order to comply with the arm’s length principle.

ECJ also stated that the fact that TP adjustment is dependent on Arcomet Romania’s economic performance (profits and losses) in a given year does not break the direct link between the supply of services and the consideration. This is because the TP adjustment is neither voluntary nor uncertain, and its amount is not difficult to quantify or uncertain within the meaning of ECJ case law[2]. In the cases referred to by the court, the ECJ concluded that a degree of uncertainty, such as the unpredictability of winning a horse race, broke the direct link between the services provided and the consideration received. Based on the ECJ judgement the contract between the parties laid down detailed rules for TP adjustments according to a precise criterion. Therefore, the TP adjustments could not be considered uncertain.

The ECJ concluded that the remuneration (i.e. TP adjustments) invoiced by the parent company to its subsidiary for contractually detailed intra-group services constitutes consideration for a supply of services falling within the scope of VAT. Additionally, the ECJ stated that tax authorities may request supplementary documentation to verify that the acquired services are actually provided and used for the purchaser’s taxable activities.

Conclusion and remarks:

The ECJ judgment confirms that transfer pricing adjustments are subject to VAT when they can be directly linked to contractually agreed intra-group services.

The ECJ found that Arcomet Belgium provided actual commercial services, beyond merely bearing risk, that contributed to the same economic activity as Arcomet Romania.

Maybe more importantly, the ECJ did not address a scenario where the TP adjustment is paid from the parent to the subsidiary (i.e., Arcomet Belgium to Arcomet Romania). In such a setup, it remains uncertain whether Arcomet Romania’s services would meet the criteria for a supply of services for consideration. We find that by only covering one side of the contractually agreed payments, this ECJ case has failed to provide more certainty of such TP agreements, as only the most straightforward position is now covered.

As a result of this case, companies that have previously treated TP adjustments as outside the scope of VAT may now face VAT liabilities, especially if they cannot demonstrate that no services were provided for consideration. This poses a risk of additional tax costs for entities with limited VAT recovery rights.

It is also essential to recognize that whether TP adjustments fall within the scope of VAT depends on multiple factors, including:

• The direction of the adjustment,
• Whose services are being assessed,
• Whether the adjustment relates to goods or services, local or crossborder transactions, etc.
• How the adjustment is formalized,
• What is actually agreed in the contract(s), and
• Which transfer pricing method is used.

The judgment provides a definitive answer only for one specific scenario. Therefore, each TP adjustment must be individually assessed, as its context may significantly affect the VAT treatment.

Finally, it is worth noting that we are still awaiting the ECJ judgment in the Stellantis Portugal case (C-603/24), which may further clarify the VAT treatment of TP adjustments. In the meantime, tax authorities may increasingly scrutinize TP adjustments, and companies should be prepared to provide robust documentation to demonstrate the nature and purpose of intra-group services.

Suggested actions:

Based on this judgement you can consider the following actions:

• Review your intra-group agreements: Ensure services and remuneration are clearly defined.
• Strengthen the TP documentation: Support and anticipate the VAT treatment and recovery with detailed records.
• Align VAT and TP teams: Integrated handling ensures consistency and compliance.

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[1] VAT Expert Group – Possible VAT implications of Transfer Pricing, Brussels, 18 April 2018

[2] Baštová, C432/15

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For more information or questions please contact our TP & VAT-specialists Taco Wiertsema (Partner TP) and Tijmen Kraaijeveld (Manager Indirect Tax)