On 3 April 2025, Advocate General J.R. de la Tour issued his opinion in case C-726/23. The case concerns whether VAT applies to transfer pricing adjustments between related parties. The facts of this case, which involved companies in the crane rental industry, may influence future treatment of intra-group transfer pricing adjustments.
The case involved transactions between two related companies – one based in Romania and the other in Belgium – operating in the purchase and rental of cranes. The Romanian company provided rental services exclusively to external entities, while the Belgian company sourced suppliers and negotiated contracts on behalf of group members. Under the agreement, the Romanian company was to receive compensation appropriate to the risk and scope of its activity, determined using the transactional net margin method (TNMM).
According to the group’s policy, the Romanian company was to maintain a specific profit level. Any profit excess or shortfall was to be balanced by an invoice from the relevant party. Due to excess profits, the Belgian company issued three invoices to the Romanian company, without VAT. The first two were treated as intra-Community supplies of services, while the third was considered a non-taxable transaction.
In his opinion, the Advocate General stressed that such matters must be assessed individually. Referring to the VAT Committee’s view, he noted that if the adjustment is contractually agreed and relates to earlier supplies or differences in marketing or administrative expenses, it should result in VAT taxation or a correction of the VAT base.
Importantly, the TNMM was used solely to determine the proper level of remuneration for intra-group services. The Advocate General argued that this remuneration should be treated as payment for a service subject to VAT. He also pointed out that in this case, based on the agreements, both the service and its link to the payment can be clearly identified through the transfer pricing method.
Now we await the CJEU’s ruling. If the Court upholds the Advocate General’s opinion, this may lead to unfavourable changes for taxpayers regarding the VAT treatment of some transfer pricing adjustments.