Luc Dhont’s Post

⚠️ VAT TAX BOMBSHELL! ⚠️ CJEU says your intra-group profit adjustments ARE Taxable, PLUS authorities can demand documentation BEYOND the invoice. STOP what you’re doing if your company uses Transfer Pricing adjustments! The CJEU’s landmark ruling in Arcomet Towercranes (Case C-726/23) just delivered two crucial shifts for multinational VAT compliance: 1️⃣TP Adjustments are VATable Services: Remuneration between associated companies, even when calculated using OECD Transfer Pricing methods like TNMM to adjust profit margins, constitutes consideration for a supply of services if contractually detailed and linked to genuine commercial services (like centralized management or risk assumption). Economic reality prevails over accounting labels. 2️⃣ Invoices are NOT Enough: Tax authorities are entitled to demand supplementary evidence (like activity reports or internal documentation) beyond the invoice to verify the substantive conditions for input VAT deduction. This applies especially if your invoices are vague regarding the nature, scope, or resources used for the intra-group service. THE GOOD NEWS: Authorities cannot refuse your right to deduction by questioning the necessity, appropriateness, or economic profitability of the services you acquired. ACTION NEEDED: Multinational groups must immediately align their Transfer Pricing documentation with VAT compliance, ensuring contracts and internal records clearly demonstrate the reality of the services performed to avoid hefty additional VAT assessments, penalties, and interest. Read more on VATabout: https://lnkd.in/dTVs-3iy #VAT #TransferPricing #CJEU #TaxCompliance #Arcomet #GlobalTax #EUlaw

🚨 VAT AND TRANSFER PRICING: CJEU decision on Arcomet case - and what it means for Brazil Over the past year, the Court of Justice of the European Union (CJEU) has been shaping how transfer pricing (TP) adjustments interact with VAT. Today, in the Arcomet case, the Court confirmed that profit-based TP adjustments linked to identifiable intragroup services are not VAT-neutral. 📌 The timeline so far: 12 Dec 2024 – Weatherford Atlas Gip (C-527/23, Romania): Services such as IT, HR, accounting and consulting were challenged as “shareholder costs” with VAT deduction denied. CJEU held that denying deduction was contrary to the VAT Directive. The fact that services benefited several group entities was irrelevant. 3 Jul 2025 – Högkullen AB (C-808/23, Sweden): Parent-to-subsidiary services. Should they be a single complex supply, and should shareholder costs be part of the VAT base? CJEU rejected the “single complex service” presumption. Each service must be assessed on its own; shareholder costs remain a grey area. 4 Sep 2025 – Arcomet (C-726/23, Romania): Under a TNMM arrangement, profit equalisation invoices were issued between the Belgian parent and Romanian subsidiary. CJEU ruled today that when such adjustments remunerate identifiable services under contract, they are taxable for VAT. Authorities may also demand evidence beyond invoices to support input VAT deduction. ⚖️ Why Brazil should pay attention Brazil has just adopted OECD-aligned TP rules (Law 14.596/2023). While Article 51 of IN RFB 2.161/23 states that compensating TP adjustments do not automatically affect the base of other taxes, the wording leaves room for interpretation. This is exactly the gap where EU jurisprudence may inspire Brazilian tax authorities: * If CJEU says profit-based TP adjustments can trigger VAT when linked to services, could Tax Authorities argue that similar adjustments should affect PIS/COFINS, ICMS, or ISS bases in Brazil? * Although Brazilian law traditionally separates TP (for IRPJ/CSLL) from consumption taxes, the ambiguity around “ajustes compensatórios” (credit/debit notes, complementary invoices) creates practical risks. 🔮 Key takeaway for multinationals in Brazil Document TP adjustments thoroughly: contracts, functions performed, and links (or lack thereof) to services. Be prepared for scrutiny not just in direct tax, but also for potential spillovers into indirect taxes. Clearer regulation is needed to prevent EU-style disputes from spilling into the Brazilian system. 👉 What do you think? Should Brazil draw a hard line between TP and indirect taxes, or is convergence with the EU inevitable? #vat #tax #cjeu #oecd #transferpricing Photo by Jon Tyson at Unsplash

When does a transfer pricing adjustment trigger VAT? A recent CJEU decision (Arcomet case) sheds some light: a TP payment can qualify as consideration for a supply of services, even if it’s framed as a year-end adjustment and regardless of the TP method applied, provided there is/are: 1. A legal relationship between the parties, 2. Reciprocal obligations, and 3. A direct link between the service and payment. ✅ No one-size-fits-all – each case requires a fact-based analysis. ✅ High impact for sectors with limited VAT recovery such as FSI, healthcare, and real estate. ✅ Year-end TP adjustments (including those linked to Pillar 2) should now include a VAT lens in your review. ✅ documentation is critical: companies must ensure that intercompany agreements and TP documentation clearly describe the services provided, their value, and the link to the payments. Key takeaway: If the payment reflects remuneration for identifiable services, VAT rules apply. Documentation and invoicing matter more than ever. 👉 How is your organization addressing VAT in TP adjustments? Let’s discuss. Patrick Tijhuis Iris Maas Milja Bormann-Bakker Eefje Lemmens Igor Peters Frederik Vinks Jorg Verhallen #VAT #TransferPricing #Tax #CJEU #YearEndAdjustments #Pillar2 #IndirectTax https://lnkd.in/eQRNR_TF

Note on Issuance of Mushak-6.6 under VDS SRO 182-Ain/2025/310-Mushak dated 27.05.2025 As per Rule-06, sub-rule 2(kha) of the above SRO, the withholding entity shall issue Mushak-6.6 to the supplier within 03 (three) working days of submission of Mushak-9.1. This provision has already created significant challenges at the field level for suppliers, as explained below: 1. Earlier Provision (SRO 240-Ain/2021/163-Mushak dated 29.06.2021): As per Rule-06, sub-rule 2(ga), withholding entities were required to issue Mushak-6.6 within 03 (three) working days after depositing the VDS amount to the Government Exchequer (within 07 days of the end of the tax period). Under this system, suppliers could collect Mushak-6.6 well before the due date of Mushak-9.1 submission. This enabled suppliers to adjust the VDS amount against net VAT payable in the relevant return, ensuring smooth compliance and better cash flow. 2.Present Provision (SRO 182-Ain/2025/310): Under the new rule, Mushak-6.6 is to be issued only after submission of Mushak-9.1. Consequently, suppliers are compelled to deposit the full VAT payable without adjusting the deducted VDS amount in time. This adversely affects their cash flow, as the deducted amount remains blocked. In cases where the supplier has low VAT liability in subsequent months, such VDS adjustment may be delayed for several months. 3. Compliance Issue for Withholding Entities: During submission of Mushak-9.1, withholding entities are required to mandatorily attach Mushak-6.6 if any increasing adjustment is made in Note-24. If Mushak-6.6 is issued only after submission of Mushak-9.1, withholding entities will be unable to attach the certificate in time. This creates a risk of non-compliance on the part of withholding entities. 4.Recommendation: In light of the above, it is requested that the competent authority reviews the current provision urgently and restores a practical system whereby: “The registered withholding entity shall issue Mushak-6.6 to the supplier within 07 (seven) days after the end of the tax period in which VAT has been deducted at source.” This will ensure timely availability of Mushak-6.6 for suppliers, protect their cash flow, and also enable withholding entities to remain compliant in submission of Mushak-9.1.

Is there a connection between Transfer Pricing group policy and VAT? The ECJ decided on sept 4th 2025 case C726/23, Arcomet to put some light on this question - Facts summary: A multinational group agreed through a contractual relationship to remunerate certain intragroup services. The amount of the remuneration, according to OECD TP guidelines, was established between -0,71% and 2,74% of the recipient´s profit margin. When the profit margin excceded the highest level of the range or when It was lower than the minor level of the range, an additional compensation is established to the related company. Depending on the recipient´s profit margin, these compensations can take opposite directions: from the recipient of the service to the supplier or the other way round This additional remuneration is invoiced, including a VAT charged to the compensation payer, who deducted such a VAT ammount. The Tax Authorities challenged the VAT deduction based on the lack of proof of the actual supply of services and on the services being neccesary for the economic activity - Questions to the ECJ and answers provided: A) For VAT pruposes, Is this compensation constituting a payment for a service? The ECJ concludes that this remuneration constitutes the consideration for a supply of services, and consequently, falls into the scope of VAT. As a consequence of that conclusion, the VAT included in the invoice is, in principle, deductible for the recipient B) If the very invoice does not include enough information to appraise the substantive conditions for VAT deduction (in this case, the existence of the service and the purpose of them for the economic activity of the taxable person), the Tax Authorities can request additional information/documents from the taxpayer, provided that the submission of that evidence is necessary and proportionate for control purposes. - Comments: Price adjustments and remunerations emerging from the application of an adequate Transfer Pricing intragroup policy can have influence in invoicing and in VAT charging and VAT deductions. For VAT audits (notably the right of VAT deduction), the invoice information must be supported in documents of the Transfer Pricing group policy (i.e: a master file), and the taxpayer should be able to submit those additional documents when requested to do so

CJEU rules transfer pricing adjustments may be subject to VAT Affiliated entities are required to calculate their profits on the basis of the arm’s length principle, which means they must use commercial prices for corporate income tax purposes and these may give rise to transfer pricing adjustments. One question is whether such adjustments have VAT consequences. On 4 September 2025, the Court of Justice of the European Union released a decision on this issue (SC Arcomet Towercranes SRL (Case C-726/23)), concluding that these transfer pricing adjustments are subject to VAT, but does that also apply in your situation? https://lnkd.in/eAW_uXDz

Are transfer pricing adjustments liable to VAT? A recent ECJ ruling has determined that, in certain circumstances, they would constitute consideration for services, bringing them within the scope of VAT. This decision underscores the need for businesses to scrutinise the nature and purpose of TP adjustments, as the VAT implications will depend on whether there is a direct link between the adjustment and a specific supply of goods or services. Where a TP adjustment or balancing payment is made, and it can be shown to relate directly to a supply – such as management services, royalties, or other intra-group transactions, VAT may be due on the full value. This would include any additional payments arising from the adjustment. Conversely, if the adjustment is purely an accounting entry with no direct link to a supply, it should remain outside the scope of VAT. This ruling reinforces the importance of robust transfer pricing documentation and clear contractual arrangements between group entities. Businesses should ensure that the rationale for any TP adjustment is well documented, and that the VAT treatment is considered at the time of the adjustment, not just at year-end. It is also essential to review whether the value declared for VAT purposes reflects the open market value, as HMRC has the power to substitute open market value where transactions between connected parties are not at arm’s length. Make sure you follow VITA for regular VAT news updates.

📌 On 4 September 2025, the Court of Justice of the European Union delivered its judgment in Arcomet Towercranes (C-726/23), addressing the VAT treatment of transfer pricing adjustments (in this case being TNMM) within a multinational. The Court confirmed that such adjustments may be subject to VAT, provided there is a direct link between contractually agreed services and the payment. The practical implication is that companies that have previously treated transfer pricing adjustments as outside the scope of VAT may now face assessments, particularly where VAT recovery is limited or when related to the supply of goods (i.e. customs value and import duties that may need to be adjusted).   The key takeaway is that each transfer pricing adjustment must be assessed individually. The contractual framework, the nature of the intercompany functions (i.e. supply of goods or services), and the method of invoicing will be decisive in determining the VAT consequences. We kindly refer to our website where we further elaborate on the relevance and our view on the case.  Based on this judgement you can consider the following actions: • Review your intra-group agreements: Ensure services and remuneration are clearly defined. • Strengthen the TP documentation: Support and anticipate the VAT treatment and recovery with detailed records. • Align VAT and TP teams: Integrated handling ensures consistency and compliance. Read the full article on our website: https://lnkd.in/eAgRCXAp For more information contact Sini Paljärvi, Krister Kojo, Taco Wiertsema and Tijmen Kraaijeveld

C-726/23 Arcomet Towercranes Topics - Transfer Pricing settlement invoices - supply of services? The CJEU has considered a Romanian referral regarding transfer pricing adjustments between Arcomet Romania and its parent company, Arcomet Belgium. The central question was whether these adjustments, aimed at aligning Arcomet Romania's profits with its activities and risks, constituted a payment for services subject to VAT. Additionally, the court examined whether tax authorities could require documentation beyond invoices to justify the use of these services for taxable transactions. Arcomet Romania, part of the Arcomet group, rents and sells cranes, while Arcomet Belgium negotiates contracts with suppliers on behalf of its subsidiaries. A transfer pricing study conducted in 2010 established that the subsidiaries should maintain an operating profit margin between 0.71% and 2.74%. In 2011-2013, Arcomet Romania received three invoices from Arcomet Belgium, which were declared as service supplies. While the first two invoices were reported as intra-community purchases under the reverse charge mechanism, Arcomet Romania argued that the third invoice related to transactions outside the scope of VAT. The Romanian tax authorities denied the right to deduct VAT on these invoices, citing a lack of supporting evidence for the services used in taxable transactions. The Bucharest Court of Appeal referred two questions to the CJEU: whether the transfer pricing adjustments were considered payment for services and if the tax authorities could demand additional documentation beyond invoices to support VAT deduction. The CJEU clarified that a supply of services is "for consideration" if there is a legal relationship between the provider and recipient, involving reciprocal commitments. In this case, the court found that Arcomet Belgium's provision of services and Arcomet Romania's obligation to pay based on its operating margin established a direct link between the services and the payments. Thus, the adjustments constituted consideration for a supply of services subject to VAT. Regarding the second question, the CJEU noted that the right to deduct VAT is contingent on meeting both substantive and formal conditions. Although the invoices lacked specific details required by Romanian law, the court held that tax authorities cannot deny VAT deductions solely based on formal deficiencies if substantive conditions are met. The authorities can however request additional evidence to verify the existence and use of the services for taxable transactions. Ultimately, the CJEU concluded that tax authorities could require a taxable person seeking VAT deductions to provide documents beyond invoices to prove the existence of the services and their use in taxable transactions, as long as such requests are necessary and proportionate.

Since a while there has been a debate on the VAT regime for TP adjustments. Different approaches were adopted throughout the EU in lack of clear provisions of the VAT Directive. However, the manner VAT and TP were linked in the decision delivered by the ECJ in the Romanian case Arcomet seems to go beyond the line taken in the previous decisions on what makes an operation be within the VAT scope or not. The parties presented an agreement stating their role in the operational model- the mother company is responsible with finding suppliers and negotiating prices and the affiliates carry out the commercial operations. The TP policy implemented based on TNMM establishes the operational margin range of the operational affiliate in consideration of its activities and risks assumed. The ECJ concludes there are intercompany services in the agreement 😳. So the role taken in the operational model by the mother co corresponds to a service rendered, because it is significantly involved in the management of the affiliate and, a ‘remuneration’ is paid. About the ‘remuneration’, this is the amount exceeding the max operational margin but, vice versa, the mother co would compensate its affiliate should the operational margin fall below the range. The ECJ concludes there is still a direct link between the ‘services’ and the ‘remuneration’ received because such is certain, it is not free and can be easily determined… right, so how about the situation when the margin is in range and there is no payment… 🤯. No answer to that, nor to the situation where the affiliate is compensated, because I quote, the case referred only to the situation where the Romanian affiliate makes a payment to the mother co. The second part on the burden of proof was not surprising, but in the context of the service assessed, it generates a complicated exercise for the companies in this situation. To conclude, TP adjustments now have clear (almost) and binding guidelines on the VAT regime. Let’s see the unfolding implications also on direct tax, especially since a ‘service’ is deemed to exist in counterpart of the TP profitability adjustments- deductibility, new TP?! Special attention recomended on the existing and future operational model and the contractual framework establishing roles and ‘payments’ in consideration of the TP policy - a new wave of VAT has come around 😁.