On April 3, 2025, the General Counsel, Jean Richard de la Tour, delivered his Opinion in case C-726/23, which pits SC Arcomet Towercranes SRL against the Romanian tax administration. This case raises key questions about the interaction between Transfer Pricing and Value Added Tax (VAT) in intra-group transactions within the European Union (EU), particularly for calculating the remuneration through OECD Transfer Pricing methodologies.
Background
Arcomet Towercranes SRL (Romania) is a subsidiary of the Arcomet Group. Arcomet Service NV (Belgium), the parent entity, provides management and support services to its subsidiaries, which are remunerated through an adjustment mechanism based on the Net Transactional Margin Methodology (NTMM), according to OECD Transfer Pricing principles.
Between 2011 and 2013, Arcomet Romania received invoices from its parent company for amounts calculated to keep its operating margin within an Arm’s Length range (-0.71% to 2.74%). Although these were services declared by Arcomet Belgium as supplies subject to VAT, the Romanian administration refused the tax deduction considering no actual supply of services nor their relation to taxable transactions supported.
Pre-judicial Issues
The Curtea de Apel Bucureşti referred two questions to the Court of Justice of the European Union (CJEU):
- Is the remuneration based on Transfer Pricing, calculated under the OECD methodology, the consideration for a service subject to VAT?
- Can the administration require, in addition to the invoice, additional documents supporting the use of the services for taxable transactions?
Opinion of the General Counsel
The General Counsel concludes as follows:
1. VAT Subjection of Remuneration for Intragroup Services
The analysis must be done on a case-by-case basis. Not all Transfer Pricing Adjustments are automatically within or outside the VAT scope. Conversely, in this specific case:
- There is a specific contract detailing the functions of each party and the remuneration methodology.
- Arcomet Belgium provides identifiable and measurable services (fleet management, contract negotiation, and commercial support).
- Remuneration is determinable according to precise criteria established contractually.
Therefore, the transaction is a supply of services for consideration within the meaning of Article 2(1)(c) of Directive 2006/112/EC and should be subject to VAT.
2. VAT Deduction Right
The General Counsel states that the right to deduct VAT requires that the services purchased are related to taxable transactions. In this regard:
- Tax authorities may require additional documentation (reports, evidence of use) beyond the invoice.
- This requirement must comply with the proportionality principle, i.e., it must be reasonable, necessary, and not excessive.
- The taxpayer is responsible for the proof.
Therefore, Articles 168 and 178 of the Directive do not oppose the request for additional evidence if the legal framework is complied with and the taxpayer’s right of defense is guaranteed.
Conclusion
This case is a significant precursor of the convergence between Transfer Pricing and VAT in intra-group transactions. The CJEU, due to the General Counsel’s conclusions, could reaffirm that:
- Transfer Pricing adjustments are not automatically exempt from VAT.
- The economic and contractual reality must prevail over the form or denomination of the transaction.
- Proof of use of services in taxable transactions is crucial to exercise the right to deduct.
This case exemplifies how OECD Transfer Pricing principles can have relevant implications in the VAT field, reinforcing the need for thorough documentation and rigorous economic-functional analysis in related-party transactions.
For experienced advice on the effects of these decisions on your company, please get in touch with TPC Group.
Source: TPCases