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The interaction between transfer pricing (TP) and VAT has been clarified in three recent judgments of the Court of Justice. TP adjustments were long regarded as profit allocation mechanisms without direct VAT consequences. The Court has now confirmed that such adjustments may also fall within the scope of VAT. This raises the question of how TP methods such as the Transactional Net Margin Method (TNMM) and the cost-plus method interact with VAT rules, and how businesses should align their documentation and compliance processes accordingly.
In this alert, we review three judgments that together provide important guidance. We begin with Acromet Towercranes SRL (C 726/23, 4 September 2025), which directly addresses the VAT treatment of a TNMM adjustment. We then compare this ruling with Högkullen AB (C 808/23, 3 July 2024) and Weatherford Atlas Gip (C 527/23, 12 December 2024), both of which concern internal recharges and cost allocations within group structures. Finally, we outline the practical implications for businesses and provide guidance on compliance and risk management.
Acromet Towercranes SRL The Belgian parent issued a corrective invoice to its Romanian subsidiary to align profits within the range determined under the TNMM. TNMM is a TP method that benchmarks the net operating margin of a related entity against that of independent comparables. The Court held that such a correction constitutes consideration for a service rendered for consideration and therefore falls within the scope of VAT. Tax authorities may request additional documentation to assess the right to deduct, provided this is necessary and proportionate.
Högkullen AB The Swedish parent provided management and support services to its subsidiaries, recharged on the basis of the cost-plus method. This TP method applies a mark-up to costs to determine an arm’s length price. The Court ruled that these recharges do not constitute a single composite supply but must be assessed as separate services for the application of the normal value in VAT. This illustrates that a TP method does not automatically determine the VAT taxable amount.
Weatherford Atlas Gip A Romanian group company acquired IT, HR and marketing services from group entities outside Romania, with costs allocated across the group. The Romanian tax authority denied the deduction of reverse-charged VAT. The Court held that the right to deduct cannot be refused based on subjective assessments. Even if services also benefit other group entities, deduction remains valid as long as the costs are used for taxable outputs. This links to TP practice, as cost allocations are a common feature of TP policies.
Practical implications The judgments confirm that TP methods and VAT rules must be assessed in conjunction. For multinational groups, this requires a reassessment of fiscal governance and internal processes.
Key considerations include:
- •Integration of TP and VAT: TP methods such as TNMM and cost-plus must not only meet arm’s length standards but also be assessed under VAT rules. This calls for an integrated approach across both disciplines.
- Contractual and documentation requirements: agreements and TP documentation should explicitly set out the nature of the services provided and the corresponding remuneration. This is essential to demonstrate the direct link between supply and consideration.
- Invoicing and reporting: TP adjustments that qualify as remuneration for services must be invoiced correctly and reported in VAT returns and EC Sales Lists on a timely basis.
- Risk management and governance: Risk management and governance: companies should strengthen their internal control framework by including checkpoints that address the VAT impact of transfer pricing adjustments and internal recharges. This helps ensure a consistent tax position and minimizes the likelihood of disputes with tax authorities.
Interested in learning more about the VAT aspects of TP adjustments and internal recharges? Feel free to reach out to your RSM advisor.