Transfer pricing and VAT: Lessons from the Arcomet judgment for companies in transition

At a glance

Companies that allocate internal costs and fees—whether management fees, shared services, or success fees in restructurings and acquisitions—should realize this is not only relevant for corporate income tax. VAT also comes into play.

In September 2025, the European Court of Justice confirmed in the Arcomet case that transfer pricing adjustments can have VAT consequences as soon as there is a contractual framework and a direct link between the service and the consideration. This applies even if the payment is uncertain or outcome-dependent, such as with success fees.

The core message for companies—large and small—is that whatever is corrected in transfer pricing must also be reflected in VAT. Neglecting this creates risks of reassessments and fines. Those who organize it properly demonstrate that they are “in control” and can avoid unpleasant surprises.

___________________________________________________________________________

Transfer pricing and VAT may sound like a technical matter for tax specialists. But after the recent Arcomet judgment (C-726/23) of the Court of Justice, delivered on 4 September 2025, it is clear that this topic affects all companies—from large multinationals to SMEs. The judgment makes clear that internal allocations leave traces not only in corporate income tax, but also in VAT. And especially in situations where the payment is uncertain, such as success fees in restructurings, refinancings, or acquisitions, this comes sharply into focus.

Transfer pricing goes beyond large corporations

Transfer pricing is often associated with multinationals and their international subsidiaries. Yet smaller businesses encounter it as well. A parent company providing services to a foreign subsidiary, or sister companies sharing costs—these are transactions that must be set at arm’s length. If a correction follows afterwards, it affects not only corporate income tax but also VAT.

SMEs: vulnerable but not exempt

For SMEs, the challenges are often greater. Adjustments are processed manually in Excel or through ad hoc bookings. The risk of missing something is therefore considerable. The rise of e-invoicing makes this even more visible: the tax authorities see deviations immediately. A missed VAT correction can result in reassessments and interest, even if the intent was correct.

The Arcomet judgment: VAT and TP inextricably linked

In the Arcomet case, the central question was whether payments under the TNMM method, a widely used transfer pricing approach, could be subject to VAT. The Court of Justice ruled that this can indeed be the case: as soon as there is a contractual framework and a direct link between a service and the consideration, VAT applies. The fact that the fee is uncertain or determined only afterwards does not change this. Even when no payment is made in certain years, the VAT qualification can remain intact.

A concrete example: success fees in an acquisition

Imagine a group of companies engaging an advisor for a restructuring or refinancing. The fee is structured as a success fee: only if the deal is successful will a percentage of the result be paid. Such a success fee is uncertain and outcome-dependent, but according to the Arcomet judgment it may still qualify as a VAT-taxable service. This means VAT must be taken into account, even if the payment is uncertain or fluctuates with the outcome.

What does this mean for companies?

The message from Arcomet is clear: if you correct something in transfer pricing, this also has consequences for VAT. An increase in the consideration leads to a higher VAT base, a decrease requires a credit note and adjustment of input VAT. Failing to process VAT corrections opens the door to fines and reassessments. For companies, it is therefore crucial to align contracts and processes so that VAT and transfer pricing are properly coordinated.

Conclusion

The Arcomet judgment shows that tax disciplines can no longer be seen in isolation. Whether it concerns a standard management fee or a success fee in a restructuring or acquisition: once there is a direct link between the service and the consideration, VAT comes into play. For businesses, this is the moment to review their processes and ensure VAT and transfer pricing go hand in hand—not only to remain compliant, but also to avoid unpleasant surprises later on.