CJEU ruling. Is profitability adjustment a service subject to VAT?
The Arcomet case – what was it about?
The case involved a Romanian subsidiary, Arcomet, which benefited from the management services provided by its Belgian parent company. An agreement existed between the companies to ensure the subsidiary achieved a certain level of profitability. If the Romanian company's actual margin exceeded the agreed-upon level, the Belgian company issued a correction invoice. If the opposite occurred, the Romanian company issued a correction.
The Belgian parent company provided intra-group services to related companies, including:
- commercial responsibilities such as strategy and planning,
- negotiating (framework) agreements with third-party suppliers,
- negotiating the terms of financing agreements,
- engineering,
- finances,
- fleet management at the central level,
- quality and safety management.
The Romanian tax authorities found that the adjustments between Arcomet Romania and Arcomet Belgium were not subject to VAT and that Arcomet Romania was not entitled to a VAT deduction. The case was brought before the European Court of Justice. Previously, in most countries, including Poland, transfer pricing adjustments that did not directly affect the prices of goods and services were not subject to VAT. According to current practice, adjusting the overall profit to market levels is not considered a VAT-taxable activity.
Moreover, transfer pricing adjustments are the result of existing uncertainty regarding the ultimate arm's length nature of the transaction. The CJEU's case law emphasizes that the uncertainty surrounding the existence of remuneration may result in a severance of the direct link between the service provided to the recipient and the remuneration received, thereby excluding VAT.
A groundbreaking judgment of the CJEU
The CJEU agreed with the Advocate General's position, finding that in Arcomet's case, the transfer pricing adjustment was not VAT-neutral. The Court found that the payment, calculated using the transactional net margin method, constituted remuneration for specific services, not merely a general adjustment.
Two factors proved crucial for the verdict:
- Existence of mutual obligations - there was a legal relationship between the companies, under which the Belgian company provided services and the Romanian company paid for them.
- Actual payment – the payment was a true reflection of the value of specific services provided by the parent company, not simply a margin adjustment. Furthermore, the fact that adjustments were made via invoices, not accounting notes, further strengthened the thesis that services were provided.
Importantly, according to the Court, the intra-group services provided by Arcomet Belgium constituted services subject to VAT. The method of determining the remuneration (net transaction margin) had no bearing on this. The surplus over the operating margin paid by Arcomet Romania to the Belgian company should also be considered remuneration for VAT purposes.
The Court also emphasised that the variable value of remuneration is irrelevant as long as it is calculated on the basis of previously established and specific rules.
Consequences of the CJEU judgment for companies in Poland
The CJEU ruling in the Arcomet case sends an important message to Polish businesses. Tax authorities may now have an additional argument to challenge settlements that treat transfer pricing adjustments as VAT-neutral.
Key takeaways and potential risks:
- Case analysis is key - not every transfer pricing adjustment will be subject to VAT, but the specific case and methods used should be carefully analysed.
- The choice of transfer pricing verification method does not determine whether or not a VAT tax liability will arise.
- As a rule, VAT regulations remain separate from income tax regulations. Terms appearing in EU VAT regulations have independent meanings from those used in, for example, OECD guidelines.
- Justifying intangible services – tax authorities gain a new tool to demand proof of intangible services from companies. Invoices alone may prove insufficient.
- Risk of double taxation - recognizing the correction as subject to VAT may result in the need to pay additional tax, as well as interest and penalties, which has serious financial consequences.
- Risk of customs value adjustments – in its Tauritus judgment issued in May 2025, the CJEU found that post-transaction transfer pricing adjustments may affect the customs value of imported goods.
How to prepare for a new challenge and how can we help?
In light of this ruling, a proactive approach by companies is crucial. It is worth taking a closer look at your intragroup settlements now and checking whether your current approach to transfer pricing adjustments is still safe.
A comprehensive analysis of contracts and documentation is essential, as is the preparation of evidence confirming the actual performance of the purchased services. It is important to ensure that the documentation not only meets existing standards but also takes into account new considerations arising from CJEU case law.
The issue presented is extremely important, especially since a government team for combating aggressive tax planning was established at the Ministry of Finance in August 2025. The main objective of the team is to combat transfer pricing abuse.
Need support in analysing your intragroup settlements in light of the CJEU ruling? Contact us! Together, we will assess potential risks and advise you on how to prepare for the new legal requirements.
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