Introduction
The interaction between transfer pricing and VAT has long been recognised as complex. Transfer pricing rules are designed for corporate income tax, while VAT is an indirect tax based on consumption, making alignment between the two systems difficult. Both the VAT Committee and the VAT Expert Group have acknowledged these challenges. The general principle is that when a TP adjustment directly corrects the price of a transaction, it should follow that transaction’s VAT treatment. More uncertainty arises with adjustments under profit-based methods, such as TNMM or profit split, where payments do not clearly correspond to individual supplies.
Against this background, the Arcomet case (C-726/23) is significant. The EUCJ held that equalisation payments under a TNMM arrangement were subject to VAT because they reflected identifiable services between the parties. This provides useful clarification but leaves open questions, particularly for adjustments not linked to specific services.
Factual background
Arcomet Belgium provided central management and support services to its Romanian affiliate. Remuneration was set under a TNMM study targeting a margin between –0.71% and +2.74% for the Romanian entity.
A contract required year-end “equalisation invoices”:
- If the margin exceeded +2.74%, Belgium invoiced Romania.
- If it fell below –0.71%, Romania invoiced Belgium.
For 2011–2013, Belgium issued equalisation invoices without VAT. Romania treated them inconsistently (sometimes as reverse charge, sometimes out of scope). The Romanian tax authorities denied input VAT deduction, arguing there was no evidence of actual services. The matter was referred to the CJEU.
Key takeaways from the judgment
1. Transfer pricing adjustments and VAT
Equalisation payments were held to be the VAT taxable consideration for services supplied by Arcomet Belgium to its Romanian affiliate. The fact that the remuneration was variable and conditional did not prevent its VAT qualification, provided the calculation method was contractually agreed and objectively determinable.
2. Documentation and deduction
Tax authorities may request evidence beyond invoices to substantiate that services were actually supplied and used for taxable activities. VAT deduction cannot be refused solely for formal shortcomings, but the taxpayer must provide proportionate and reliable documentation.
Limitations and open questions
The Court confined itself to the questions referred and, as expected, did not provide a general VAT analysis of transfer pricing adjustments. It left open how to treat reverse situations (e.g. when Romania invoices Belgium) or cases where no equalisation invoice is issued. Nor did it examine in detail the questions of the VAT taxable basis and potential balancing services.
The judgment should therefore be seen as an important clarification, but not the final word. Further guidance may emerge from pending cases, in particular the Stellantis Portugal case (C-603/24).
Relevance for practice and conclusion
The Arcomet case confirms that transfer pricing policies cannot be implemented without a parallel VAT analysis. In practice, companies face a paradoxical double risk: either failing to apply VAT when it is due or applying VAT when it is not due — both exposing them to penalties.
Year-end adjustments should therefore be reviewed carefully to determine whether they relate to identifiable services and fall within the VAT scope. Multinational groups are well advised to revisit their TP policies, align invoicing practices with VAT rules, and assess potential exposure on past adjustments.
The wave of recent VAT/TP cases before the CJEU shows that this becoming a compliance priority.
For more information or to discuss what this means for your business, please contact your usual PwC advisor, or connect with Lionel Wielemans and Claire De Lepeleire.
