Transfer pricing adjustments may constitute the consideration for a taxable supply of services (ECJ Case 726/23)

Background

Arcomet Romania (Arcomet RO), part of the Arcomet Group (Arcomet BE), carried out crane rentals and sales in Romania, while Arcomet Belgium managed the group’s strategy and supplier negotiations. In 2012, the two entities entered into an intra-group agreement linking remuneration to the Transactional Net Margin Method (TNMM), in line with Organisation for Economic Co-operation and Development (OECD) guidelines, requiring profit adjustments whenever Arcomet RO’s operating margin fell outside –0.71% to 2.74%.

Between 2011 and 2013, Arcomet RO’s margin exceeded this range, leading Arcomet BE to issue invoices to recover the excess profit. Arcomet RO treated two of the three invoices as subject to value-added tax (VAT) under the reverse charge mechanism. However, the Romanian tax authorities denied the deduction of input VAT, considering that no actual services had been provided.

The referring court asked the ECJ: (1) whether an amount paid to adjust a company’s operating profit margin constitutes consideration for a supply of services; and (2) whether the tax authorities are entitled to request documents beyond invoices to accept the input VAT deduction right of the taxable persons.

Judgment of the Court 

The Court recalled its settled case law that a supply of services is carried out “for consideration”, within the meaning of Article 2(1)(c) of the VAT Directive, if there is a legal relationship between the provider and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for an identifiable service supplied to the recipient. 

The ECJ then confirmed that the payments invoiced by Arcomet BE to Arcomet RO under their intra-group transfer pricing agreement satisfied these conditions. Arcomet BE had indeed provided agreed commercial services benefiting Arcomet RO, and the amounts stipulated in the contract represented actual consideration for those services.

The Court rejected the argument that the uncertain nature of the provision of any payment breaks the direct link between the service provided to the recipient and any payment which may be received. The Court emphasised that the remuneration was neither voluntary nor uncertain; nor was the amount thereof difficult to quantify or uncertain, since, even if variable, it was agreed upon in advance in the contract and determined according to precise criteria.

Finally, regarding input VAT, the Court ruled that Romanian tax authorities may require the taxable person to adduce the evidence necessary to determine whether the requested deduction should be granted. Such evidence must be necessary and proportionate to assess whether the substantive conditions for the right of deduction are satisfied, which, in the circumstances of the case, is for the referring court to determine.

And now? 

Does this mean that all transfer pricing adjustments are subject to VAT? No. VAT applies on a case-by-case basis, where an intra-group arrangement involves reciprocal obligations and confers identifiable benefits. Further clarification from the ECJ is awaited in the pending Stellantis Portugal case (C-603/24), which also concerns the VAT treatment of transfer pricing adjustments.

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Gauthier Duquesne is a member of the Brussels Bar, and an associate in the tax team at DALDEWOLF. Gauthier specialises in VAT, customs law, and excise duties.