Transfer pricing adjustments and VAT – The Arcomet Case

Advocate General’s Opinion

According to the Advocate General, the relationship between the companies indicated that the parent company provided specific, identifiable services under the adjusted invoices, as the remuneration was attributable to a particular service rendered by the parent company and set when the profitability indicators were known. Furthermore, the disputed adjustment was made through invoices, not accounting notes as is typical for standard transfer pricing adjustments. The Advocate General concluded that remuneration in this case, calculated using the transactional net margin method, should be treated as consideration for a service subject to VAT. Accordingly, the transfer pricing adjustment under this model cannot be considered neutral for VAT purposes.

CJEU Judgment

The Court, in its judgment of 4 September 2025 (C-726/23), endorsed the Advocate General’s position, confirming that in Arcomet’s model, the transfer pricing adjustment is not VAT-neutral:

” remuneration in respect of intra-group services, provided by a parent company to its subsidiary and contractually detailed, which is calculated in accordance with a method recommended by the Transfer Pricing Guidelines adopted by the Organisation for Economic Co-operation and Development (OECD) and corresponds to the part of the operating profit margin greater than 2.74% achieved by that subsidiary, constitutes the consideration for a supply of services for consideration falling within the scope of value added tax.“

According to the CJEU, both parties – the Romanian and Belgian companies – had undertaken reciprocal obligations under the agreement: Arcomet Belgium committed to providing commercial services and bearing the main economic risks of the Romanian operating entity, while Arcomet Romania agreed to pay at the end of each year an amount corresponding to the portion of its operating margin exceeding 2.74%. Therefore, a legal relationship existed, and payments made by the Romanian company constituted remuneration for services rendered by Arcomet Belgium. The Court emphasized, echoing the Advocate General’s opinion, that the services provided by the Belgian company impacted Arcomet Romania’s operating margin.

The CJEU found that the conditions established in its case law for considering a service as supplied for consideration and thus subject to VAT were met in this case: (i) a legal relationship exists between supplier and recipient, involving an exchange of mutual performances, and (ii) the consideration received by the supplier genuinely reflects the value of the service provided to the recipient.

This conclusion is also supported by the fact that Arcomet Belgium’s activity is not limited to typical holding company functions without direct or indirect involvement in managing subsidiaries; rather, the Belgian company actively participates in managing the Romanian company in VAT-taxable transactions, such as providing commercial services to its subsidiary.

The CJEU also noted that neither (i) the variable amount of remuneration owed to Arcomet Belgium, which is not random, uncertain, or difficult to determine, nor (ii) the contractual provision for reverse payments from Belgium to Romania in case the Romanian operating margin fell below -0.71%, affects this conclusion, since Arcomet Romania recorded positive operating margins exceeding the agreed threshold in each of the three years under review.

Regarding the second preliminary question, the CJEU ruled that EU law does not preclude tax authorities from requiring taxpayers to provide documents other than invoices to demonstrate that the services listed on the invoice were actually performed and used for taxable transactions, in order to confirm the taxpayer’s right to deduct input VAT.

Implications of the CJEU Judgment

The CJEU’s judgment in the Arcomet case (C-726/23) will undoubtedly have significant implications for the analysis of transfer pricing and VAT issues. Most importantly, it confirms that transfer pricing adjustments must always be assessed in light of the specific facts of the case and the rules applied in their calculation.

The CJEU held that, in the case at hand, services were provided between the Belgian company and its Romanian subsidiary. From this perspective, an interesting question arises: if the reverse situation occurred (i.e., where, under the agreement, the Romanian entity charged the Belgian parent to “adjust the margin downwards”), should this also be treated as a supply of services by the Romanian entity? The CJEU acknowledges this possibility but refrains from addressing it in substance, treating it as a purely hypothetical scenario. This is somewhat surprising, as it gives the impression that, in the Court’s view, the very act of aligning margins to the level agreed in the intra-group arrangement could in itself constitute a taxable supply of services within the group – a conclusion that may be seen as unexpected.

Nevertheless, the Arcomet judgment may create a new reality in Poland as well, providing tax authorities with additional arguments to challenge taxpayers who treat transfer pricing adjustments as VAT-neutral. For this reason, a thorough review of intra-group settlements in light of the Court’s reasoning is clearly necessary. The consequences could be very serious.

The CJEU also reaffirmed a long-standing practice in Poland, whereby tax authorities require taxpayers to present evidence of the actual performance of acquired intangible services. Taxpayers should therefore maintain not only invoices but also additional documentation demonstrating that services were genuinely rendered and used for taxable transactions.

How We Can Help

We support taxpayers in a comprehensive approach to intra-group transaction reporting, taking into account both current and future CJEU case law. By combining expertise in transfer pricing and VAT – including issues related to transfer pricing adjustments and their VAT impact – we help identify potential risk areas, review existing documentation, and develop solutions that comply with current and upcoming legal requirements.

We invite you to get in touch – together, we can analyze how the latest CJEU case law may affect your group’s operations and determine the steps worth taking today.