The European Court of Justice (ECJ) in case C-726/23 addressed whether “balancing” payments between a parent and subsidiary company, calculated using the transactional net margin method, constitute remuneration for services subject to VAT. The Romanian subsidiary, Arcomet Romania, received invoices from its Belgian parent company for exceeding a set profit margin, which were initially not subject to VAT. After a tax audit, the Romanian tax authority imposed additional VAT and denied the subsidiary’s VAT deduction claim, arguing the services were not proven necessary for taxable activities. The Romanian Appeal Court considered whether such payments are subject to VAT and if the tax authority can require additional documentation beyond invoices for VAT deduction claims. The ECJ ruled that such payments are remuneration for services if there is a legal relationship involving mutual benefits, and the tax authority can require evidence of a direct link between the service and economic activity for VAT deduction.
Source: pkfapogeo.cz
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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