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As organizations fine-tune their intra-group pricing to meet arm's length requirements, the tax implications extend beyond direct taxation. This pivotal issue has now reached the European Court of Justice, with far-reaching consequences for tax compliance across the EU.
On 3 April, 2025, the Advocate General issued an opinion in the significant ECJ Case C-726/23 (Arcomet Towercranes), which addresses the complex intersection between transfer pricing and VAT in EU tax law.
The Romanian subsidiary Arcoment Towercranes SRL received invoices from its Belgian parent company to align profit margins according to OECD transfer pricing guidelines. Romanian tax authorities applied VAT through the reverse charge mechanism but denied deduction rights due to insufficient proof of actual services.
The Advocate General appears to support recognising these adjustments as subject to VAT when they represent genuine consideration for services rendered. The opinion emphasises that documentation requirements should be proportional and primarily focused on establishing that services were used for taxable transactions.
This case highlights the complex interplay between transfer pricing regulations and VAT principles. While the VAT Expert Group has provided guidance suggesting transfer pricing adjustments for guaranteed profit margins fall outside VAT scope, the Arcoment case adds nuance by considering contractual responsibilities and risks as potentially constituting taxable services.
The forthcoming judgment will be crucial for multinational enterprises across the EU in clarifying documentation requirements and determining when transfer pricing adjustments trigger VAT consequences.
