The Arcomet group specializes in the rental of cranes. For its intra-group transactions, the group applies a transfer pricing policy in accordance with the OECD Guidelines, in particular the “Transactional Net Margin Method” (TNMM). On this basis, the Romanian company Arcomet Towercranes had to pay remuneration to the Belgian group company Arcomet Service NV for the years 2011, 2012, and 2013. The profit margin of the Romanian company exceeded a certain percentage for those years, which led the Belgian company to issue corrective invoices to reclaim that excess profit. This was part of an agreement concluded in January 2012, under which both parties undertook to perform a number of services for each other’s benefit. The Belgian company was responsible for most of the commercial responsibilities (such as strategy and planning, negotiating (framework) agreements with third-party suppliers, negotiating the terms of financing agreements, engineering, finance, central fleet management, and quality and safety management) and bore the main risks associated with the economic activity. The Romanian company undertook to purchase and hold all products necessary for the exercise of its activity and to be responsible for the sale and rental of these products as well as for the provision of services.
The Belgian company issued invoices for the excess profit without VAT. The Romanian company applied Romanian reverse charge VAT on these invoices in its VAT return and deducted it. The Romanian tax authorities denied this deduction because the Romanian company could not prove that actual services had been received or that these services were used for its taxable transactions.
The Romanian court dealing with the dispute first asked the European Court of Justice whether a transfer price within a group, calculated on the basis of a subsidiary’s profit margin, can be regarded as consideration for a service subject to VAT.
Service for consideration
The Court reiterated its case law that a service can only be subject to VAT if it is carried out for consideration by a taxable person (Article 2(1)(c) of the VAT Directive). For a service to be “for consideration,” there must be a direct link between the service supplied and the actual consideration received by the taxable person. This is the case where there is a legal relationship between the supplier and the recipient in which reciprocal performance is exchanged and the remuneration received by the supplier is the actual value of an identifiable service provided to the recipient.
It is for the Romanian court to decide whether this is the case, but the Court may, based on the case file, provide useful guidance regarding EU law.
For the Court, it is clear that there is a legal relationship between the provider and the recipient in which reciprocal performances are exchanged. The remuneration received by the Belgian company constitutes the actual consideration for the services it provided, which gave the Romanian company a tangible advantage because they affected its profit margin through cost savings or by improving the services to end customers.
The fact that the remuneration merely serves to adjust the Romanian company’s profit margin in line with the OECD Guidelines does not change that conclusion. In assessing whether a service is supplied for consideration, all factual circumstances and the economic and commercial reality must be taken into account. According to the Court, a transfer price can indeed be the actual consideration for a service provided.
The Court also rejected the argument that the remuneration was uncertain, thereby breaking the direct link with the service supplied. The agreed amount (the transfer price) is variable and depends on the Romanian company’s results, but it is not voluntary, arbitrary, difficult to quantify, or uncertain. The calculation of the remuneration was laid down in advance in the agreement according to precise criteria, meaning it is not uncertain as such. This situation is not comparable to that of a passer-by voluntarily giving money to a street musician (Case Tolsma, C-16/93 of 3 March 1994) or a taxable person winning prize money by entering a horse in a competition (Case Bastova, C-432/15 of 10 November 2016).
That the Belgian company is liable to pay remuneration to the Romanian company if the latter’s profit margin falls below a certain percentage is irrelevant according to the Court. The case brought before the Court concerns the reverse situation laid down in the agreement.
The right to deduct VAT
If Romanian VAT is indeed due on the amount paid to the Belgian company, may the Romanian company deduct this VAT, even though the invoices do not specify the nature of the services, the number of hours worked, the staff and materials used, or the method of calculating the fees?
The Court recalled its case law that if the tax authorities have all the information necessary to verify whether the substantive conditions for exercising the right to deduct VAT have been met, they may not refuse that right solely because an invoice fails to comply with certain formal requirements set out in national law. To meet the substantive condition, it is essential that the service for which VAT deduction is sought has actually been provided and subsequently used by the taxable recipient for its own taxable transactions. Whether the service is necessary or appropriate for the recipient is irrelevant.
It is for the Romanian company to provide the evidence required to assess whether it subsequently used the services in question for its own taxable transactions. The evidence requested by the tax authorities must be necessary and proportionate to assess whether the substantive conditions for the right to deduct have been met.
Ruling of the Court
- Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as meaning that remuneration for contractually specified intra-group services provided by a parent company to its subsidiary, calculated using a method recommended in the OECD Transfer Pricing Guidelines and corresponding to the part of the subsidiary’s profit margin exceeding 2.74%, constitutes consideration for a service supplied for consideration falling within the scope of value added tax.
- Articles 168 and 178 of Directive 2006/112, as amended by Directive 2010/45, must be interpreted as not precluding the tax authorities from requiring a taxable person seeking to deduct input VAT to provide documents other than the invoice to demonstrate that the services listed on that invoice were actually provided and used for the taxable person’s own taxable transactions, provided that the production of such evidence is necessary and proportionate for verifying whether the substantive conditions for the right to deduct have been met.
CJEU, C-726/23, Arcomet Towercranes, 4 September 2025
