CJEU on VAT and intra-group profit adjustments

(Case C-726/23 –Arcomet Towercranes)

On 4 September 2025, the Court of Justice of the European Union (CJEU) issued an important judgment in Arcomet Towercranes SRL v. Romanian Tax Authorities. The case clarifies when intra-group profit adjustments fall within the scope of VAT and what tax authorities may require to prove the right to deduct input VAT.

This decision is highly relevant for multinational groups using transfer pricing arrangements, as it shows how closely transfer pricing and VAT can be connected.

Facts of the case

Arcomet Group operates internationally in the crane rental sector. Its Belgian parent, Arcomet Service NV, was not a passive holding company: it negotiated supplier contracts, arranged financing, and managed engineering, safety and commercial risks for the group.

In Romania, subsidiary Arcomet Towercranes SRL carried out the actual sales and rentals to local customers. To formalise the relationship, a contract was signed in 2012. Under this agreement, Belgium provided centralised services and took on the group’s key risks, while Romania focused on daily operations.

Remuneration was set using the OECD’s Transactional Net Margin Method (TNMM). The subsidiary’s profit margin had to remain between –0.71% and 2.74%. If profits exceeded the cap, the excess was invoiced to Belgium; if profits fell below the floor, Belgium compensated Romania.

Between 2011 and 2013, Arcomet Romania’s profits were above the upper limit, so Belgium issued invoices. The Romanian tax authorities later denied input VAT deductions on these invoices, arguing that Romania had not shown that actual services were provided. This led to additional VAT, penalties and interest.

Questions to the CJEU

The Court of Appeal in Bucharest referred two key questions to the CJEU:

1. Do intra-group profit adjustments under transfer pricing rules amount to consideration for services subject to VAT?
2. Can tax authorities demand documentation beyond invoices before allowing input VAT deduction?

The Court’s findings

The CJEU answered both questions clearly:

• Profit adjustments can be taxable: Even if the amount is calculated using transfer pricing methods, payments linked to real services – such as contract negotiation, financing, and risk management – qualify as “consideration” under Article 2(1)(c) of the VAT Directive. Economic reality, not accounting form, determines the VAT treatment.
• Invoices must reflect services: While invoices are a formal requirement, they must contain sufficient detail. If invoices are vague or generic, tax authorities may ask for additional evidence (such as contracts, reports or correspondence) to confirm that services were actually provided and used for taxable activities.
• Limits to tax authority powers: Authorities cannot require taxpayers to prove that services were necessary, appropriate or profitable. VAT deduction depends only on whether services were supplied and linked to taxable output transactions. Any request for further evidence must remain proportionate.

Practical implications

The ruling underlines several important lessons for businesses:

• Contracts matter: intra-group agreements should clearly describe the services provided and the remuneration mechanism.
• Documentation is key: keep service reports, internal correspondence and other records to demonstrate that services were actually performed.
• Transfer pricing ≠ outside VAT: profit reallocations under OECD methods may also fall within VAT, as long as they correspond to real services.
• Neutrality protected: tax authorities may not deny deduction merely because they doubt the commercial value of the service.

Conclusion

The Arcomet Towercranes case confirms two fundamental VAT principles: economic reality and proportionality.

• Economic reality: intra-group payments that correspond to actual services are taxable supplies for VAT purposes.
• Proportionality: while authorities can request evidence beyond invoices, they cannot go beyond what is necessary to verify the conditions for deduction.

For multinational groups, it is recommended to review their intercompany agreements from a VAT perspective and prepare agreements if they are missing. Our team of VAT and Transfer Pricing experts is ready to help.