CJEU ruling on the VAT valuation of intragroup services

At a glance

A closer look

Background

Arcomet Belgium is the parent company of a group active in crane rentals and sales. It provides different services to its subsidiaries, including Arcomet Romania. In this context, Arcomet Belgium sources suppliers for Arcomet Romania (and other entities in the group), and negotiates the contractual terms to be applied when cranes and other equipment are purchased from third-party suppliers. The sales and rental contracts with both suppliers and customers are then concluded by Arcomet Romania.

The price of services is based on a corporate transfer pricing analysis based on principles established by the Organization for Economic Co-operation and Development (OECD); the aim is to ensure that any price agreed between related parties is comparable to those that would be charged between independent parties. This is due to a larger effort to prevent a Member State (MS) from being deprived of its "fair share of tax,” and thus permits the tax authorities to adjust prices agreed between parties. Conducting such an analysis can improve compliance and help prevent a circumstance where an adjustment leads to consequences like fines, late payment interest, criminal sanctions, etc.

Details of the case 

An initial transfer pricing analysis performed by a specialist firm for the Arcomet group established that, considering the roles and responsibilities of Arcomet Belgium and Arcomet Romania, the latter's margin should range between minus 0.71% and plus 2.74% of its turnover. For example, if the subsidiary achieves a turnover of €10,000,000 and a loss of €200,000 representing a minus 2% profit margin, it is entitled to compensation of €129,000 (2% - 0.71% = 1.29%) so that it achieves a margin of minus 0.71%. If it achieves a margin of 4% on the same amount of turnover, it must pay the parent company an amount of €126,000 (€4% - 2.74% = 1.26%). If its margin is within the range, no payment is made between the companies. This method is named the “transactional net margin method” (TNMM).

A contract was concluded between Arcomet Belgium and Arcomet Romania; in addition to bearing the main economic risks associated with Arcomet Romania’s business activities, Arcomet Belgium was also responsible for the following:

• Strategy and planning
• Negotiating (framework) contracts with third-party suppliers
• Negotiating the terms and conditions of financing contracts, engineering, afinance nd crane fleet management at central level
• Quality and safety management

On the other hand, Arcomet Romania assumed responsibility for purchasing and storing all the goods necessary for its business activity as well as the sale and rental of those goods and for the provision of services.

The above-mentioned transfer pricing analysis M analysis performed for the Arcomet group revealed that Arcomet Romania achieved a margin above the maximum of 2.74%. After receiving three invoices issued by Arcomet Belgium for the corresponding amounts owed, Arcomet Romania self-assessed Romanian value-added tax (VAT) on two of the invoices and considered the third invoice to be out-of-scope; hence, no VAT was applied. Instead, they deducted the self-assessed VAT on the two invoices since its sales and rental activities were fully subject to VAT and, in principle, gave it the right to full deduction.

However, The Romanian VAT administration saw it differently. While collecting the VAT paid on the first two invoices and demanding payment of the VAT on the third, they refused the deduction stating that Arcomet Romania had not properly demonstrated the necessity of these services for its taxable operations.

Arcomet brought the case before the Romanian courts, which decided to have the CJEU clarify:

1. Whether such a transfer price adjustment constitutes a provision of services subject to VAT; and
2. Whether there should be a deduction right.

Court ruling 
On 4 September 2025, the CJEU ruled that the remuneration for intragroup services, calculated using a standard transfer pricing method adopted by the OECD, constitutes the payment for services. Since this payment includes the portion of the operating margin exceeding 2.74% of the subsidiary’s turnover, it falls within the scope of VAT.

Unfortunately, the Court has not elaborated what the consequence would be if Arcomet Belgium made a payment to Arcomet Romania when the negative margin realized by the latter is less than minus 0.71%.

Regarding the deduction of VAT paid on this amount, the Court affirms its traditional jurisprudence requiring a direct and immediate link between the expenses and the taxable transactions performed by the VAT taxable person. They also maintain that the VAT authorities may ask for additional evidence, beyond invoices when deemed necessary and proportionate for this purpose. The Court also refuted the “necessity” test (i.e., demonstrating that these services are necessary for taxable operations) required by the Romanian VAT authorities. This is in line with the Court’s earlier decision in its “Weatherford Atlas Gip SA” (C-527/23) decision on 12 December 2024. See our 16 December 2024 newsletter for further details.

Final takeaway

Indeed, the Court’s decision clarifies how VAT should be applied to the transactions in the case at hand, but it is not exhaustive enough to cover all transfer pricing adjustment methods. As mentioned above, Arcomet determined the price of services based on the transactional net margin method (TNMM). However, it is uncertain that the same VAT analysis would apply to the other following methods:

• Uncontrolled price (CUP)
• Resale price
• Transactional profit split
• Cost-plus

This absence of a “one size fits all solution,” and thus the need for a case-by-case approach, was already highlighted by the European Commission in its 2017 working paper (WP 923) “Possible implications of transfer pricing.” In this respect, we should remember that the CJEU will have to examine the consequences of transfer pricing adjustments once again in the “Stellantis Portugal, S.A. case” (C-603/24), which was lodged with the Court on 16 September 2024. Anticipating typical delays, we might expect to have the decision issued in 2026.

Taxable persons, especially those which do not have a full right to VAT deduction, must consider both the impact of this decision on their operations and the importance of proper documentation.

The Deloitte Luxembourg Indirect Tax team remains at your disposal to discuss the potential impacts on your organization.