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In the Arcomet case (C 726/23), the European Court of Justice has once again ruled that transfer pricing adjustments are subject to VAT when there is a direct link between the supplied service and the remuneration paid, based on an existing contractual agreement between a parent company and its subsidiary. In this case, the Belgian parent company was responsible for providing a number of group services and bore the associated economic and commercial risks.
Following the Weatherford Atlas case (C 527/23) and the Högkullen case (C 808/23), this is the third ruling in a row highlighting the interactions between VAT and transfer pricing.
While formal requirements (such as holding an invoice) are important, the Court emphasized that these should not create absurd or unnecessary barriers to exercising the right to deduct VAT. VAT authorities may therefore request additional supporting documents, beyond the invoice, to substantiate the authenticity of the underlying service and its use in the taxpayer’s economic activity — as long as such requests are proportionate and necessary.
This new judgment is also in line with the position of the Italian authorities in the Beta Group case, involving a non-resident with a VAT representative selling goods to an Italian distributor. There, the Italian authorities concluded — based on the direct link between various services and the corresponding remunerations — that VAT was due, thereby rejecting the "out of scope" approach as defended in the VEG Working Paper No. 923/2017.
This case once again underscores the critical importance of substantiating the allocation of administrative costs within a group of companies to support the right to deduct VAT on these costs. This requires a solid foundation of transfer pricing documentation, with particular attention linking these costs to the taxable outputs of the entity.
If you have any questions regarding the substantiation or documentation of such costs, we encourage you to contact your trusted RSM advisor.
If you would like more information on this topic or assistance with VAT matters, you can contact the VAT team at RSM Belgium ([email protected]).
