- VAT and Transfer Pricing Case: A recent case (C-726/23) before the Court of Justice of the European Union, initiated by a Romanian judge, seeks clarity on the application of VAT to intercompany transactions and transfer pricing adjustments, specifically regarding whether payments charged by a parent company to a subsidiary, calculated using the OECD’s transactional net margin method (TNMM), should be treated as payments for services subject to VAT.
- Advocate General’s Opinion: On April 3, 2024, Advocate General de la Tour opined that the amounts charged under the TNMM are indeed payments for services subject to VAT, emphasizing that each situation must be assessed based on its specific facts. He noted that tax authorities may request documentation to verify the services were used for taxable activities, but such requests must be proportionate and justified.
- Implications for Businesses: The case highlights the importance of understanding the VAT implications of transfer pricing adjustments and the necessity for thorough documentation to support VAT deductions. Businesses should be aware that tax authorities may require more than just invoices to substantiate the use of services for taxable activities, and they must ensure compliance with evolving regulations in this complex area.
Source VAT-consult
See also
- ECJ C-726/23 (Arcomet Towercranes) – AG Opinion – Transfer Pricing Adjustment for intra-group services subject to VAT; documentation required
- Briefing Document: Advocate General’s Opinion in Case C-726/23 (SC Arcomet): VAT, Transfer Pricing and Intra-Group Services
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AG opines on VAT treatment of TP adjustments and VAT deduction documentation
- VAT Treatment of TP Adjustments: Advocate-General de la Tour opined that transfer pricing adjustments in the Arcomet Towercranes case fall within the scope of VAT, emphasizing that the determination of VAT applicability should be evaluated on a case-by-case basis, taking into account the economic and commercial realities of each situation.
- Supporting Documentation Requirements: The AG asserted that tax authorities can require supporting documentation beyond invoices to confirm the provision of services and their relevance to taxable transactions. This includes demonstrating a direct link between the services and the taxpayer’s economic activity.
- Implications for Taxpayers: The AG’s opinion suggests that adequate transfer pricing documentation, along with additional internal evidence, may assist taxpayers in justifying VAT deductions. The CJEU’s eventual decision will clarify these principles further and provide guidance for international groups facing similar VAT treatment challenges.
Source Deloitte
According to AG of the CJEU, transfer pricing within the group is considered to be consideration for service
- Advocate General Richard de la Tour concludes that transfer prices within an international group are considered as consideration for services supplied, making them subject to VAT.
- The Arcomet Group, involved in crane rental, faces VAT assessments from Romanian tax authorities for transactions between its Romanian and Belgian entities. Arcomet Romania disagrees with these assessments, leading to a preliminary ruling request.
- The Advocate General states that tax authorities can require additional documents beyond invoices to prove that services were used for taxable transactions, provided this is done proportionally and the documents can substantiate the existence and use of the services.
Source Taxlive
