ECJ C-726/23 (Arcomet Towercranes) – Judgment – Transfer Pricing Adjustment for intra-group services subject to VAT; documentation required

On September 4, 2025, the ECJ issued the judgment in the case C-726/23 (Arcomet Towercranes)

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Right to deduct VAT — Intra-Community transactions between associated companies — Transfer pricing — Acquisition of intra-group administrative services — Services considered not to have been used for the purposes of the taxable transactions — Supporting documents — Refusal of the right to deduct VAT

What is the Decision?

Article 2(1)(c) Interpretation: The CJEU ruled that “the remuneration of intra-group services, supplied by a parent company to its subsidiary and detailed contractually, which is calculated in accordance with a method recommended by the principles applicable in the matter of transfer prices, adopted by the Organisation of Economic Cooperation and Development (OECD) and corresponds to the part of the operating margin greater than 2.74% realized by the subsidiary, constitutes the quid pro quo of a service performed for consideration falling within the field of application of Value Added Tax.”
In essence, payments aligning with OECD transfer pricing can be subject to VAT if they represent genuine services, not simply artificial adjustments. The existence of a contract detailing reciprocal obligations between the parties is an important factor.
Documentation Requirements for VAT Deduction: The CJEU addressed the question of whether tax authorities can demand documents beyond invoices. The ruling states that “Articles 168 and 178 of Directive 2006/112 must be interpreted as meaning that they do not preclude the tax administration from requiring a taxable person who requests deduction of the Value Added Tax paid upstream to provide documents other than the invoice to prove the existence of the services mentioned on this invoice and their use for the needs of the taxable transactions of that taxable person, provided that the production of that evidence is necessary and proportionate to those ends.”
Tax authorities can request additional documentation to verify the “reality of the service and its use for the taxable person’s taxed operations,” but these requests must be “necessary and proportionate.” Automatic denial of a VAT deduction based solely on formal invoice deficiencies is not permissible if the authorities have sufficient information to verify the substantive conditions are met.
To qualify for a VAT deduction, an “assujetti” must demonstrate that “they are a taxable person, and that the goods or services for which they seek the deduction are used for their own taxed operations. They must show that the goods or services were supplied by another taxable person.”

Summary

Preliminary Ruling Context: The case involves SC Arcomet Towercranes SRL and Romanian tax authorities regarding the application of VAT on services provided within a corporate group. The primary legal questions concern the interpretation of the VAT Directive regarding intra-group service remuneration and the right to deduct VAT.
Interpretation of VAT Directive: The Court ruled that remuneration for services provided by a parent company to its subsidiary, determined by OECD transfer pricing principles and linked to operating margins, constitutes “consideration” for services under Article 2(1)(c) of the VAT Directive, thereby falling within the scope of VAT.
Deduction of Input VAT: The Court clarified that tax authorities can require documentation beyond just invoices to prove the existence and usage of services for taxable transactions, in line with Articles 168 and 178 of the VAT Directive. This is permissible as long as the additional documentation requirement is deemed necessary and proportionate.
Legal Relationship & Economic Reality: The ruling emphasized the importance of a direct link between the services provided and the remuneration received, affirming that the economic and commercial realities of the transaction must be considered to ascertain if a service was rendered for consideration.
Implications for Tax Practice: The decision highlights the need for companies to maintain thorough documentation of intra-group transactions to substantiate VAT deductions and the necessity for tax authorities to assess both formal and substantive conditions when evaluating VAT claims.

Article in the EU VAT Directive

Charter of Fundamental Rights of the European Union: Article 41(1) and (2)(a).

Article 2(1)(c) and Articles 168 and 178 of the EU VAT Directive 2006/112/EC

Article 2
1. The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 178
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;
(b) for the purposes of deductions pursuant to Article 168(b), in respect of transactions treated as the supply of goods or services, he must comply with the formalities as laid down by each Member State;
(c) for the purposes of deductions pursuant to Article 168(c), in respect of the intra-Community acquisition of goods, he must set out in the VAT return provided for in Article 250 all the information needed for the amount of VAT due on his intra-Community acquisitions of goods to be calculated and he must hold an invoice drawn up in accordance with Sections 3 to 5 of Chapter 3 of Title XI;
(d) for the purposes of deductions pursuant to Article 168(d), in respect of transactions treated as intra-Community acquisitions of goods, he must complete the formalities as laid down by each Member State;
(e) for the purposes of deductions pursuant to Article 168(e), in respect of the importation of goods, he must hold an import document specifying him as consignee or importer, and stating the amount of VAT due or enabling that amount to be calculated;
(f) when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.

Facts

The requesting party in the dispute is ‘SC Arcomet Towercranes SRL’ (hereinafter: Arcomet). There are two defendants, including the Romanian tax authorities. Arcomet is part of a group of companies involved in crane rental. In December 2010, a tax consultant for Arcomet Belgium carried out a transfer pricing investigation, including for the relationship with (requesting party) Arcomet. In Romania, the findings of the investigation were converted into an agreement concluded on January 24, 2012 between Arcomet Belgium and Arcomet. Acromet recorded a profit surplus in 2011, 2012 and 2013, for which it received three settlement invoices without VAT from Arcomet Belgium. Tax inspectors later denied the right to deduct VAT on two of these invoices and withheld the VAT collected on the grounds that no supply of services had been demonstrated and no need to provide them for taxable transactions had been demonstrated.

Consideration:

The referring court questions whether the settlement invoices formally corrected the operating result and whether those invoices relate to any provision of services within the meaning of Article 2(1)(c) of Directive 2006/112. If the payment is seen as a payment for a service provided, it falls within the scope of VAT. The judge also wonders whether the request for additional documents (other than invoices) from the tax inspectorate is in accordance with the principle of proportionality and the objectives of the VAT Directive.

Questions

1. Must Article 2(1)(c) of Council Directive 2006/112/EC on the common system of value added tax be interpreted as meaning that the amount paid by a company (the principal) to an affiliated company (the operating company) and which is equal to the amount by which the profit of the operating company is brought into line with the activities performed and the risks assumed according to the margin method of the OECD Transfer Pricing Guidelines, is a payment for a service and therefore falls within the scope of VAT?

2) If the first question is answered in the affirmative, can the tax authorities, as regards the interpretation of Articles 168 and 178 of Council Directive 2006/112/EC on the common system of value added tax, request documents (such as activity reports or work statements) proving the use of the services purchased for the taxable transactions of the taxable person, or should this analysis of the right to deduct VAT be based solely on the direct link between the acquisition and the supply/ transaction or on the entire economic activity of the taxpayer?

AG Opinion

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:

a transaction-based net margin remuneration for intra-group services provided by a parent company to a subsidiary, calculated in accordance with the transfer pricing method recommended by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for multinational enterprises and tax administrations, as consideration for a service for consideration within the meaning of this provision and must be subject to VAT.

2. Articles 168 and 178 of Directive 2006/112, as amended by Directive 2010/45

must be interpreted as meaning that:

they do not preclude the tax authorities from requiring a taxable person who requests deduction documents other than the invoice in order to prove that the services purchased have been used for the purposes of his taxable transactions, provided that those documents are required, first, in compliance with the principle of proportionality and, secondly, are capable of establishing the existence of the services in question and their use for the purposes of the taxable transactions of the taxable person.

Decision

1. 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 intra-group services, provided by a parent company to its subsidiary and detailed in the contract, which is calculated in accordance with a methodology recommended by the applicable transfer pricing principles adopted by the Organisation for Economic Co-operation and Development (OECD) and corresponds to the part of the operating margin achieved above 2,74 % by that subsidiary, constitutes consideration for a supply of services effected for consideration falling within the scope of value added tax.

(2) Articles 168 and 178 of Directive 2006/112, as amended by Directive 2010/45, must be interpreted as meaning that:

They do not preclude the tax authorities from requiring a taxable person who is seeking the deduction of input value added tax to submit documents other than the invoice in order to prove the existence of the services mentioned on that invoice and their use for the purposes of that taxable person’s taxable transactions, provided that the production of such evidence is necessary and proportionate for those purposes.

Implications for Businesses:

The Arcomet Towercranes case has several important implications:

Intra-group Service Agreements: Businesses need to carefully structure and document intra-group service agreements. Clear and specific descriptions of services provided are crucial.
Documentation Practices: Companies must maintain robust documentation to substantiate VAT deductions, going beyond mere invoices. This includes records that prove the reality and use of the service.
VAT Compliance Strategies: This ruling emphasizes the importance of integrating VAT considerations into transfer pricing policies and documentation. Tax authorities are likely to scrutinize intra-group transactions more closely.
Burden of Proof: The “assujetti” bears the burden of proving they are entitled to a VAT deduction.
Proportionality: The additional documentation demanded by the tax authority must be proportional and necessary,

ECJ Cases Referred to

The Arcomet Towercranes case refers to other judgments of the Court of Justice of the European Union (CJEU). Here’s a list of those cases:

Apple and Pear Development Council (102/86): This case is cited to support the condition that a service is only subject to VAT if there is a direct legal relationship between the service provider and the recipient involving reciprocal performances, and the payment represents the actual value of the service
Weatherford Atlas Gip (C‑527/23): This case is cited alongside the Apple and Pear Development Council case, reinforcing the requirement of reciprocal performances for a service to be subject to VAT. It is also cited to support the conditions that must be met to benefit from the right to a VAT deduction
Polysar Investments Netherlands (C‑60/90): This case is referenced to differentiate between a holding company’s investment activities and a company’s direct or indirect involvement in the management of its subsidiaries. The simple acquisition and holding of shares do not constitute an economic activity subject to VAT
Marle Participations (C‑320/17): This case is cited with Polysar Investments Netherlands to further support that the simple acquisition and holding of shares do not constitute an economic activity subject to VAT
Larentia + Minerva et Marenave Schiffahrt (C‑108/14 and C‑109/14): This case is mentioned to highlight that when a holding company actively participates in the management of its subsidiaries, it is considered a transaction subject to VAT
Apcoa Parking Danmark (C‑90/20): This case is cited to emphasize that the existence of a service effected for consideration must account for all circumstances characterizing the operation, including its economic and commercial reality
Tolsma (C‑16/93): This case is cited concerning the condition that the uncertain nature of a payment can break the direct link between the service provided and the payment received
Finanzamt X (Prestations du propriétaire d’une écurie) (C‑713/21): This case is cited with Tolsma to further support the principle that the uncertain nature of a payment can break the direct link between the service provided and the payment received. It is also cited to highlight that agreed-upon means of remuneration are not gratuitous, random, hard to quantify or uncertain
Baštová (C‑432/15): This case is cited to support the point that a remuneration is not random when the conditions of said renumeration are agreed upon in advance
Barlis 06 – Investimentos Imobiliários e Turísticos (C‑516/14): This case is referenced to emphasize that tax authorities cannot deny a VAT deduction solely because an invoice does not meet formal requirements if they have enough information to verify that the substantive conditions for the deduction are met
Dyrektor Izby Administracji Skarbowej w Warszawie (TVA – Acquisition fictive) (C‑114/22): This case is cited to support the condition that without the actual performance of services, no right to deduction can arise
Ferimet (C-281/20): This case is cited to support that tax authorities can request the necessary evidence to determine whether a deduction should be granted, including documents from the service provided