When Transfer Pricing Meets VAT: The CJEU’s Arcomet Ruling Explained
When it comes to intra-group settlements, transfer pricing and VAT are more closely connected than many might assume. A recent judgment by the Court of Justice of the European Union (CJEU) in the Arcomet case has made this clearer than ever — showing that certain transfer pricing adjustments may, under specific circumstances, qualify as VAT-taxable services.
When transfer pricing becomes VATable
The Arcomet case involved a parent company that took an active role in its subsidiary’s business — providing strategic guidance, participating in negotiations, making financing decisions, and sharing business risks.
At year-end, the companies used a true-up mechanism to align the subsidiary’s profits with market levels.
According to the CJEU, this retrospective adjustment can, under certain conditions, constitute consideration for a service. Where the parent company performs actual, contractually agreed tasks, and the payment is based on an objective and transparent formula (for instance, a TNMM range), the transaction reflects a direct link between the service and its consideration — fulfilling a key condition for VAT liability.
Different principles: Transfer pricing vs. VAT
The Court emphasised that OECD transfer pricing rules and VAT principles operate on different logics. A transfer pricing analysis alone cannot determine the VAT treatment of a transaction.
The key questions are:
Is there an identifiable service provided?
Are there mutual contractual commitments?
Does the payment represent genuine consideration?
In Arcomet, all three criteria were met, and the true-up was therefore regarded as payment for a service subject to VAT.
…But not always
Not all true-ups are VATable. If the parent company acts purely as a passive holding entity and provides no real services, then payments from the subsidiary do not fall under VAT. The same applies when settlements are merely accounting adjustments without actual payment.
In such cases, the transaction is treated as a free-of-charge service, typically outside VAT scope.
Moreover, if the true-up mechanism leads to payments flowing in the opposite direction (the service provider pays the subsidiary), the CJEU implied that no VATable service arises in those periods either.
What to expect next
The issue remains active. A similar case — Stellantis Portugal — is already before the CJEU, focusing on whether cost reimbursements linked to warranty issues should be seen as VATable services or simply price adjustments. A ruling is expected in 2026.
Key takeaway
The Arcomet decision highlights that transfer pricing and VAT cannot be treated in isolation. True-up adjustments often reflect genuine, compensated services with significant VAT consequences.
Businesses should now review their intra-group agreements, revise documentation and invoicing practices, and prepare evidence showing whether their true-ups represent actual services.
