A new perspective from the CJEU on transfer pricing adjustments and VAT – the Arcomet Case (C-726/23)

Continuing the TP and VAT series, in which we discuss the most important cases regarding intra-group settlements (see: Intra-group settlements under the scrutiny of the CJEU – key issues in transfer pricing and VAT), this time we are looking at the Arcomet case (C-726/23), which introduces a new perspective on a well-known topic. The issue of transfer pricing adjustments and their impact on VAT settlements, despite existing guidelines, still raises many doubts, as confirmed by the cases brought before the Court of Justice of the European Union, including Högkullen and Weatherford (see: Intra-group settlements under scrutiny by the CJEU – what does the Weatherford ruling mean for intra-group service acquisitions?).

What is the context of the Arcomet case (C-726/23)?

The Arcomet case attracted significant interest already at an early stage. Although the CJEU ruling has not yet been issued, the publication date has already been announced – 4 September 2025 at 9:30 am. The Opinion of the Advocate General from 3 April 2025 has already caused a stir regarding prevailing views on the treatment of TP adjustments. Contrary to the existing line of case law, the Advocate General found that a transfer pricing adjustment may give rise to VAT obligations.

In the case in question, the Romanian subsidiary Arcomet, engaged in the purchase, sale, and rental of cranes, used management services provided by its Belgian parent company. The companies had a pre-agreed profit level arrangement: if the actual margin exceeded the agreed level, Arcomet Belgium would issue a correcting invoice. In the case of a lower profit margin – the Romanian company would issue the invoice.

Until now – both in the practice of tax authorities and in court rulings – the dominant position was that TP adjustments have no impact on VAT settlements. This results primarily from the basis for making the TP adjustment, i.e. an adjustment is made to a transaction whose price was at arm’s length at the time of execution, but due to unforeseeable circumstances, the market price changed at a later time. This means that a transfer pricing adjustment does not concern a specific service, but the overall transaction, and merely aims to establish a market-level price.

The Belgian tax authorities took a different view. They indicated that transfer pricing adjustments should result in corrective VAT invoices. In their opinion, since the value of goods was ultimately adjusted, the VAT taxable base should also have been adjusted. The case was referred to the court, which submitted a preliminary question to the CJEU.

The Advocate General’s Position

The Advocate General of the CJEU considered that the relationship between the companies, in light of the contract provisions, indicates that the parent company provided specific and defined services under the corrected invoices. This results from the fact that the remuneration was assigned to a specific service provided by the parent company, at a value already determined when the profitability indicators were known. Furthermore, the disputed adjustment was made by means of invoices, rather than accounting notes, as is the case with typical transfer pricing adjustments.

Additionally, the Advocate General pointed out that the transfer pricing method was applied directly to determine the remuneration for intra-group services, and not to adjust it to a specific level of profitability. This means that such remuneration, based on the transactional net margin method, should be treated as payment for a service subject to VAT. Therefore, a transfer pricing adjustment under this model cannot be considered VAT-neutral.

Significance of the Advocate General’s Opinion

The Advocate General’s opinion indicates a possible direction for assessing the nature of invoices related to TP adjustments. The Advocate General noted that tax authorities may require taxpayers to provide additional documentation beyond the invoice, in order to prove that the acquired services were used for VAT-taxable transactions. In cases where the rules for adjustments are precisely defined in the contract, and the transactional net margin method is used to verify the transfer price, an obligation to impose VAT on those invoices may arise.

Although the Advocate General’s opinion is not binding, it is worth noting that a CJEU ruling based on this opinion would have significant implications. Should the CJEU confirm the existence of a VAT obligation, this would mark a departure from the current line of tax authority decisions, which in practice may work to the disadvantage of taxpayers.

What does this mean for Transfer Pricing?

To protect against the negative consequences of a potential CJEU ruling, it is worth analysing how existing TP adjustments are arranged between related entities. In practice, this means the need to develop detailed assumptions, conditions for execution, and business justifications, which should be appropriately documented for evidentiary and defensive purposes in disputes regarding whether the adjustment relates to a single transaction or the taxpayer’s entire business. A carefully planned strategy regarding TP adjustments, which considers both TP and VAT aspects, will effectively reduce the risk of disputes with tax authorities.

What does this mean for VAT?

The opinion under discussion does not change the commonly accepted principle that the analysis of TP adjustments must always be based on the specific case and the rules applied in its calculation. Although in case C-726/23 Arcomet claimed it concerned a VAT-neutral TP adjustment, the Advocate General adopted a different factual assessment. It was established that “the method of calculating the transfer price was applied directly for the purpose of calculating, a posteriori, the remuneration for the provision of intra-group services, without making a subsequent adjustment”, which excluded the classification as an adjustment. According to the Advocate General, although the transactional net margin method was applied, it served to determine the arm’s length level of remuneration, once profitability was already known, and this excluded the need for a later adjustment. Therefore, a detailed analysis of settlements between specific entities in the given situation will still be necessary.

In the second aspect of the case, the Advocate General confirms the long-standing practice in Poland, whereby tax authorities require proof of performance for acquired intangible services. Taxpayers, in addition to purchase invoices, should possess other evidence to demonstrate the actual acquisition of services and their use for taxable transactions. Of course, the principle of proportionality mentioned by the Advocate General means that only such evidence may be required as the taxpayer is reasonably able to collect.

How can we help?

We support enterprises with a comprehensive approach to intra-group settlements, taking into account both current and upcoming rulings of the Court of Justice of the European Union. By combining specialist knowledge in transfer pricing and VAT – including issues related to TP adjustments and their impact on VAT settlements – we help identify potential risk areas, analyse existing documentation, and develop solutions compliant with both existing and future legal regulations.

We encourage you to get in touch – together, we will analyse how the latest CJEU positions may affect the functioning of your corporate group, and what actions are worth taking today.

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