Are transfer pricing adjustments subject to VAT? The Advocate General’s opinion does not contribute much

In the world of globalized business, settlements between related entities are commonplace. Transfer pricing mechanisms operate within international capital groups, allowing for the adjustment of companies’ profitability to market levels. While the OECD guidelines organize these issues well in the area of ​​income taxes, many doubts remain unresolved in the case of VAT.

In April 2025, the Advocate General of the European Court of Justice, Jean Richard de la Tour, issued an opinion on the transfer pricing adjustments. However, it is worth noting that the case in question concerned a specific case where the Belgian parent company provided certain services to its Romanian subsidiary, hence the margin adjustment became a remuneration subject to VAT. It was therefore not a classic adjustment of the profitability of a company from the group, which in practice concerns the level of transfer prices applied in the group and the resulting level of profitability. Hence, the position presented in the opinion should not be directly transferred to other situations. In this context, the Advocate General’s statement that each case concerning transfer price adjustments should be analyzed separately is of fundamental importance.

Opinion of Advocate General in the case C‑726/23, Arcomet Towercranes

The case concerned an international crane rental group. The Romanian company Arcomet bought or rented cranes and then resold or rented them to the customers. The Belgian parent company provided intangible services to the group, such as searching for suppliers or negotiating contracts. The remuneration was set using the operating margin method, and when the Romanian company’s profit exceeded a target level, it was issued annual adjustment invoices. The Romanian company settled two invoices as intra-Community acquisitions of services, and the third as non-VAT.

Following a tax audit, the Romanian tax authorities refused the company the right to deduct VAT, considering that there was no evidence of the provision of services and their connection with taxable activities.

Are intra-group services subject to VAT?

We will still have to wait for the CJEU ruling on this matter, but on April 3^rd this year, the CJEU Advocate General issued an opinion on the matter. In his opinion, the fact of financial flows between related entities – even if they take place as part of transfer pricing arrangements – does not determine the VAT obligation itself.

According to the Advocate General, it is impossible to adopt one general principle for the VAT taxation of TP corrections. This results from the differences in legal regimes: OECD guidelines, created for income tax purposes, cannot be automatically transferred to the VAT area, which uses other concepts and mechanisms. It would be hard to apply any automatism here.

When assessing whether a given financial flow is subject to VAT, it should always be determined whether:

• the services had a real, distinct character;
• they were provided to a specific beneficiary;
• there is a clear link between the benefit and the remuneration (even if established indirectly, e.g. as a profit adjustment).

In this particular case – even though the settlements were made in the form of a profit adjustment – ​​according to the Advocate General, a transaction subject to VAT took place due to a number of circumstances, such as:

• an agreement mutually obliging the parties to provide specific services and specifying the terms of remuneration;
• separable services provided by the parent company to the subsidiary;
• a direct link between the services provided and the remuneration received, understood as a prior determination of the criteria for granting it (even if the contract does not specify a specific amount).

The Advocate General took the position that the remuneration for such a service between related entities is subject to VAT and it would be an error to classify it differently due to the very criterion of applying settlements based on the transfer pricing method.

Is an invoice sufficient to deduct VAT?

The second strand of the dispute concerned the issue of documenting intangible services. The Romanian tax authorities denied the company the right to deduct VAT, arguing that it had not demonstrated the actual performance of services or their connection with taxable activities of the company.

The Advocate General admitted that the fact of receiving an invoice does not give the taxpayer the right to deduct VAT itself, and the request to document that the services were actually performed and served the company’s business activity does not violate the principle of proportionality.

What does this mean for the capital groups?

The subject of the interface between transfer pricing and VAT raises numerous doubts and the practice in this area is not uniformly applied in the EU Member States. Attempts to standardize the approach at the EU level have not yielded results. Some guidelines were formulated by the VAT Committee in 2017 and in the working document of the VAT Expert Group at the European Commission in 2018. Currently, several cases of a similar scope are pending before the CJEU (in addition to this one – e.g. C-603/24 Stellantis Portugal or C-808/23 Högkullen AB).

In Poland, tax authorities also order individual assessment of the consequences of TP adjustments on VAT grounds, depending on the circumstances of a given case. Nevertheless, we can already speak of a well-established line of interpretation by the authorities, which makes the VAT consequences dependent on whether the TP adjustment concerns specific earlier supplies of goods or services (in which case it is documented with a correction invoice), or whether it concerns equalizing the level of profitability in the group (in which case it is not subject to VAT and may be documented with an accounting note). Situations in which the services are provided in exchange for the TP adjustment amount occur rather sporadically.

We have to wait now for the CJEU judgment in the case in question, but also in other cases pending before the Court. However, this case does not seem particularly relevant for most cases where taxpayers make adjustments to transfer prices in a group, due to the special situation related to the benefits provided by the parent company.