This is to let you know that the Advocate General of the Court of Justice of the European Union (“AG”) issued their opinion on 3 April 2025 in case C-726/23 which was concerned with the applicability of  Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to transfer pricing adjustments.

The facts and essence of the case

The facts of the case were as follows. Two related parties (associated enterprises), i.e. Arcomet Romania as Recipient and Arcomet Belgium as Provider, were engaged in a transaction involving certain services, including strategy and planning, engineering, finance, and negotiating framework contracts with suppliers.

The Recipient was involved in buying or renting cranes which it then sold or rented to its customers. The Provider assumed the financial risk associated with the results of Recipient’s operations. If Recipient’s operating profit margin moved beyond the range determined through a comparability study using the transactional net margin method (i.e. beyond the range from -0.71% to 2.74%), a compensating adjustment was invoiced whose economic burden or benefit fell upon the Provider.

The case  essentially involved the question of whether bringing a related party’s profit margin in line with the arm’s length level through a transfer pricing adjustment should be identified as consideration for the purposes of the VAT Directive and as such a taxable transaction.

AG’s opinion

According to AG, the transaction in question involves a consideration in the form of transfer of risk of  operating results to the Provider in exchange for financial benefits in the form of savings and the quality improvement of the services provided by Recipient. In addition, the terms of the services agreement allow for the remuneration to be established in detail based on the comparability study. As such, the AG concluded that the transfer pricing adjustment with which the case is concerned is subject to VAT.

However, AG made a point of noting that such assessments must be made on a case-by-case basis, taking the following into account:

  • The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines)  were drawn up for the purposes of direct taxation, which are very different from the purposes of indirect taxation.
  • OECD Guidelines recognise several types of transfer pricing adjustments, some of which are made by the tax administration while others are made voluntarily by taxpayers.
  • Liability to VAT is linked to the economic and commercial realities of a particular situation.

Polish practice

The Polish VAT Act is silent on the taxation of transfer pricing adjustments. The position among the Polish tax authorities has been that if a TP adjustment does not lead to a change in the price of the goods or services and merely alings the related party’s profit margin with the arm’s length level, the adjustment remains outside the VAT system. In this context it becomes even more important to obtain assurance as to the VAT treatment of transfer pricing adjustments in particular cases.

We will monitor how AG’s opinion affects business practice and will keep you up to date on any related developments.

If this issue pertains to your business and you are interested in our assistance, please contact us.

This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.