Non-transactional principal: AG’s opinion on VAT treatment of TP adjustments and supporting documentation for VAT deduction

On 3 April 2025, Advocate-General (AG) de la Tour of the Court of Justice of the European Union (CJEU) issued his opinion in the Arcomet Towercranes case (C-726/23) on the VAT treatment of transfer pricing (TP) adjustments and the required supporting documentation.

The AG is of the opinion that in this case, the TP adjustments fall within the scope of VAT and that the tax authorities can require supporting documentation to justify the VAT deduction.

Facts of the case

Arcomet Romania is part of the global Arcomet group which operates in the crane rental and sale sector. The Belgian parent company operates as the principal and sets the strategy, manages and controls the main risks, engages and negotiates with suppliers on behalf of the Romanian company, etc. Arcomet Romania buys or rents cranes which it then sells or rents to its customers.

Based on a 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 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.

Arcomet Belgium initially reported the three invoices as relating to intra-Community supplies of goods. The Belgian tax authorities considered that the equalisation invoices related to supplies of services.

Arcomet Romania reported two of the invoices as relating to intra-Community purchases of services and applied the reverse charge mechanism. The third invoice was not reported, as Arcomet Romania considered that it related to transactions outside the scope of VAT.

After a tax inspection, the Romanian tax authorities concluded that the equalisation invoices related to management services acquired by Arcomet Romania from Arcomet Belgium and requested supporting documents confirming that the services had actually been provided, and that the services were necessary for the purposes of Arcomet Romania’s taxable transactions.

For the two invoices for which the reverse charge procedure was applied, the tax authorities denied the right to deduct the input VAT, but retained the VAT 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, the tax authorities took the view that it also related to a 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.

Questions referred to the CJEU

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 constitutes 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.

Opinion of the AG

Before analysing the case at hand, reference was made to two working papers submitted during the proceedings, Working paper No 923 published by the EU’s VAT committee and Paper No 071 REV2 published by the VAT Expert Group.

First preliminary question: VAT treatment of TP adjustments

The AG was of the opinion that he cannot provide a principal answer to the question whether TP adjustments are subject to VAT. The judgments should be made on a case-by-case basis as the OECD transfer pricing guidelines were designed for direct taxes, which differ from indirect taxes, and they offer various methods for TP adjustments. Finally, whether TP adjustments are within the scope of VAT must be assessed based on the economic and commercial reality.

The AG also analysed whether the service was provided for consideration. As Arcomet Belgium not only negotiates the terms of the agreements to be concluded by its subsidiary, but also carries out tasks that contribute to the economic activities of Arcomet Romania, the AG concluded that an identifiable service is provided.

Although the amount of compensation is not formally specified, the AG stipulated that the modalities are clearly defined by the agreement and the transactional net margin method benchmark study.

AG de la Tour was therefore of the opinion that the amount invoiced by the principal company to an associated company for the supply of services, equal to the amount necessary to align the operating company’s profit with the activities carried out and the risks assumed in accordance with the margin method of the OECD guidelines, constitutes a payment for services which therefore falls within the scope of VAT.

Second preliminary question: Supporting VAT documentation

The AG emphasised the necessity of a direct link between the services and the economic activity. The taxpayer must provide objective evidence that goods or services were actually supplied. AG de la Tour was of the opinion that tax authorities may require a taxpayer to provide documents other than the invoice, provided that these documents are requested in accordance with the principle of proportionality, which is subject to verification by the national courts. On this point, the AG indicated that subject to this verification, Arcomet Romania would in principle be able to include services provided by Arcomet Belgium in its prices to customers.

Relevance of the opinion

There is little official guidance on the VAT treatment of TP adjustments, particularly in the case of nontransactional principal arrangements where, in practice, several different approaches are being taken by international groups. Although the AG did not take a principal position as to whether TP adjustments are subject to VAT, his conclusion provides valuable insights as to the underlying principles which may be applied in practice.

As for the requirement to provide additional evidence to demonstrate that such services are used for taxable transactions, adequate TP documentation could be used to support this, supplemented with other internal documentation such as emails, meeting notes, organisational charts, job descriptions, and governance structures in place. The CJEU’s decision is expected in the coming months.