“Just an accounting entry”? 

“It’s just an accounting entry.” I first heard that phrase bandied about during an international panel discussion. It was used to downplay the significance of transfer pricing adjustments, as if they were mere bookkeeping formalities, creating a false sense of security for the non-tax-versed participants. This phrase has aged poorly; indeed, I’ve been biding my time on this article, watching the Acromet case unfold and listening to the commentary that followed. It’s no longer just about aligning margins; it’s about understanding the substance behind the numbers.

I am writing this article as we await the CJEU's final decision on 4th September; the outcome will either reaffirm or reshape the Advocate General’s opinion. Regardless, the need for integration and clarity in VAT and transfer pricing remains urgent. 

The Acromet case: A Romanian dispute with EU-wide ripples

At the heart of the case was a series of invoices issued by Arcomet Belgium to its Romanian subsidiary. These weren’t ordinary service charges - they were part of a transfer pricing adjustment designed to align profit margins using the Transactional Net Margin Method (TNMM). Romania’s tax authorities challenged the VAT treatment of these invoices, arguing that the services were not sufficiently substantiated and denying the VAT deduction.

The matter escalated to the CJEU, which was asked to determine whether such adjustments could be considered a supply of services for consideration under EU VAT law. The Advocate General’s opinion was clear: if there is a legal relationship, identifiable services, and a direct link between the services and the remuneration, then VAT applies, even if the payment is made to align margins.

The burden of proof and the role of documentation

One of the most practical takeaways from the Acromet case is the importance of documentation. The CJEU confirmed that VAT authorities can require more than just an invoice;, they can demand supporting documents that prove the existence and use of the services for taxable transactions. This includes activity reports, progress documentation, and intercompany agreements.

RSM UK echoed this point, noting that businesses often overlook the VAT implications of transfer pricing adjustments. Without proper documentation, VAT deductions can be denied, and penalties may follow.

From accounting entry to taxable event

This case forces us to rethink the idea that transfer pricing adjustments are mere accounting formalities. When adjustments reflect real services, whether explicitly invoiced or embedded in broader intercompany arrangements, they can trigger VAT obligations. The CJEU emphasised that the nature of the payment is secondary to the economic reality of the transaction.

A voice ahead of its time: Fernando Matesanz in 2015

One has to give credit where credit is due. Long before Acromet made headlines, Fernando Matesanz was already sounding the alarm. In his 2015 paper, he argued that the interrelationship between transfer pricing and VAT was “a fact that cannot be overlooked.” He warned that adjustments made to comply with transfer pricing policies often modify the taxable amount of a transaction, and therefore have VAT consequences. He called for harmonised EU legislation to address this complexity, noting that the lack of clarity was leaving businesses exposed to risk and inconsistency.

Reading his work now, it’s striking how prescient it was. Matesanz didn’t just anticipate the legal questions raised in Acromet; he framed the practical challenges that businesses still face today. His call for integration and clarity remains as relevant as ever.

Conclusion: A call for integration and clarity

That panel moment, the offhand “just an accounting entry” comment, keeps coming back to me. Not because it was necessarily wrong, but because it was incomplete. The Acromet case shows us that transfer pricing adjustments can be more than internal housekeeping; they can be taxable events with real-world consequences.

As VAT professionals, we need to move beyond silos and embrace a more integrated approach, one that connects transfer pricing, VAT, Income Tax and economic substance. This calls for better alignment between transfer pricing documentation, intercompany agreements, and VAT compliance. It also highlights the need for harmonised EU guidance, as inconsistent national practices create risk and uncertainty.

So next time someone says, “It’s just an accounting entry,” it’s worth asking: is it really?
 

Article written by Kenneth Cremona, Senior Manager - Indirect Tax Advisory and Compliance