CJEU rules that non-transactional profit adjustments charged by a Principal constitute services in scope of VAT

On 4 September 2025, the Court of Justice of the European Union (CJEU) issued its decision in the Arcomet Towercranes case (C-726/23) on the VAT treatment of nontransactional profit adjustments charged by a principal company to an operating company and on the required supporting documentation.

Background and facts of the case

The global Arcomet group operates in the crane rental and sale sector. The Belgian parent company (Arcomet Belgium) operates as the (nontrading) principal and, among other things, sets the strategy, manages and controls the main risks, and engages and negotiates with suppliers on behalf of its subsidiary Arcomet Romania. In turn, Arcomet Romania sells and rents cranes to its customers.

Based on a transfer pricing (TP) study, Arcomet Romania would earn an operating profit margin falling within an arm’s length range. In the relevant years, it recorded a surplus profit, for which it received three so-called “equalisation invoices” (i.e., one for each yearly TP adjustment to the benchmarked operating profit margin) from Arcomet Belgium, without VAT. This was in line with an agreement concluded between the two parties, stating their respective responsibilities and the applicable TP policy.

Following a tax inspection, the Romanian tax authorities denied the right to deduct input VAT on two invoices for which the reverse charge procedure had been applied, and retained the VAT already collected on the grounds that the supply of services and the need to perform the services for the purposes of taxable transactions had not been justified.

For the third invoice, which had been considered as outside the scope of VAT by Arcomet Romania, the tax authorities took the view that it related to the purchase of intra-Community services from Arcomet Belgium and additional VAT was collected, without granting the right to deduct the VAT, as no supporting documents were produced.

For a more detailed overview of the facts, please consult our previous Tax Alert of 4 April 2025.

Questions referred to the CJEU: Application of VAT on the transfer price and VAT recoverability

The Court of Appeal in Bucharest referred two questions to the CJEU. The first requested confirmation that the amount invoiced by the principal company to an associated (sales and rental) company constituted a payment for services, and therefore falls within the scope of VAT.

The second question was intended to confirm the documentation requirements (such as invoices and activity reports) necessary to establish a direct link between the purchase and the supply, or the taxable person’s economic activity as a whole.

In this published opinion, the Advocate-General (AG) replied in the affirmative to the first question: the invoiced amount was to be considered as payment for a service within the scope of VAT. On the second, the AG opined that member states may impose additional, proportionate, requirements to corroborate the right to VAT recovery on intragroup services.

CJEU considerations

VAT treatment of intragroup remuneration

The CJEU has now followed the AG’s opinion and ruled that the charges made to ensure Arcomet Romania falls within the arm’s length range are within the scope of VAT, as they are considered as remuneration for services. The court noted the following points:

• Based on the agreement concluded between the two parties, Arcomet Belgium committed to provide commercial services and to bear the main economic risks associated with Arcomet Romania’s operations, while Arcomet Romania agreed to pay an amount corresponding to its profit margin exceeding a specified threshold. There is a legal relationship between the service provider and the recipient involving reciprocal commitments.

• The remuneration paid reflects the actual consideration for the services supplied. Payments made under the contract were deemed to confer a specific benefit to Arcomet Romania, affecting its operating margin through cost savings and the improved services provided to the end customers.

• The activities performed by Arcomet Belgium extended beyond mere shareholding, involving active management through commercial services, and did constitute economic activities subject to VAT.

• Although the agreed remuneration in itself was variable as it was dependent on the profits and losses of Arcomet Romania in a given year, the remuneration was neither voluntary nor uncertain, nor was the amount difficult to quantify or uncertain (as the mechanism to compute the correction was determined).

Supporting VAT documentation

On the second question, the CJEU has also followed the AG’s opinion. The right to deduct VAT is subject to compliance with both substantive and formal conditions. The court reiterated that the tax authorities cannot refuse the right to deduct VAT on the sole ground that an invoice does not satisfy certain formal conditions if there is sufficient additional information available to determine whether the substantive conditions are satisfied.

The tax authorities may request additional evidence if necessary to verify that the services were actually supplied and used for Arcomet Romania’s taxable activities; however, the evidence required must be necessary and proportionate, and the tax authorities cannot demand proof of the economic necessity or appropriateness of the services.

Significance of the decision

This judgment has been much anticipated, as there is little official guidance on the VAT treatment of TP adjustments. In practice, several different approaches are currently being taken by international groups and tax authorities. Although this decision is expected to provide greater legal clarity for international groups with comparable intragroup TP arrangements, it may also prompt wider discussions regarding the VAT implications of TP models in general.

Companies are strongly encouraged to review their existing TP policies and the VAT treatment currently applied, to ensure alignment with the latest legal interpretations and to identify any potential gaps or areas of uncertainty. For any arrangements that have a different fact pattern to the Arcomet Towercranes case, such a review is encouraged.