EU VAT Committee – WP 1114 – Case law C-726/23 (Arcomet Towercranes) – Transfer pricing

Commission Analysis – Core Themes

1. Nature of Transfer Pricing Adjustments

The Commission emphasizes that payments made under transfer pricing rules can constitute consideration for a service if:
- There is a direct legal relationship between the parties.
- Reciprocal obligations exist (e.g., parent provides administrative or strategic services; subsidiary pays remuneration).
Aligning with OECD transfer pricing principles does not automatically exempt these payments from VAT. If the payment reflects genuine services, it falls within Article 2(1)(c) of Directive 2006/112/EC.

2. VAT Deduction and Documentation

The Commission supports the Court’s interpretation that Articles 168 and 178 allow tax authorities to request additional documentation beyond invoices to verify:
- The existence of the service.
- Its use for taxable transactions.
Such requests must be necessary and proportionate. Automatic denial of VAT deduction solely due to formal invoice deficiencies is not permissible if substantive conditions can be verified.

3. Economic Reality vs Formalism

The Commission stresses prioritizing economic and commercial reality over purely formalistic accounting practices.
Intra-group adjustments should be assessed based on whether they represent real services, not artificial profit-shifting mechanisms.

4. Practical Implications

For businesses: Ensure robust documentation of intra-group services (contracts, evidence of actual benefit).
For tax authorities: Maintain proportionality when requesting supporting documents; avoid blanket refusals based on minor formal errors.

Key Takeaways

Transfer pricing adjustments may trigger VAT if linked to genuine services.
Documentation requirements are legitimate but must respect proportionality.
The ruling reinforces the principle that VAT neutrality and right to deduct remain fundamental, provided substantive conditions are met.