
Victor Elovsson
Senior Lawyer
Stockholm
Newsletter
by Victor Elovsson and Ebba Perman Borg
Published:
On 4 September 2025, the Court of Justice of the European Union (the "CJEU") published its ruling (C‑726/23) addressing two fundamental questions regarding VAT on intra-group services and deduction rights. The CJEU ruled that remuneration for intra-group services calculated according to OECD Guidelines constitutes consideration for VAT-liable supply of services, whilst confirming that tax authorities may require additional documentation beyond invoices for VAT deduction claims, provided such requirements are necessary and proportionate.
Arcomet Romania ("AR"), part of a global group, received services from its Belgian parent company Arcomet Belgium ("AB"), which sought suppliers and negotiated contractual terms for all subsidiaries. Following a transfer pricing study in December 2010 showing subsidiaries should maintain operating profit margins between -0.71% and 2.74%, the companies entered a service agreement on 24 January 2012 whereby AB provided commercial services including strategy, supplier negotiations, and fleet management.
The contract established a remuneration mechanism based on OECD's transactional net margin method, requiring annual settlement invoices when AR's operating profit margin exceeded 2.74%. During 2011-2013, AR's margins exceeded this threshold, resulting in invoices from AB for the excess profits.
The CJEU confirmed that VAT liability requires a legal relationship with reciprocal performance, where remuneration constitutes actual consideration for identifiable services with a direct link between service and consideration. Crucially, the CJEU found that AB's services conferred specific advantages on AR through cost savings and improved customer service, satisfying the direct link requirement.
The CJEU rejected arguments that compliance with OECD Guidelines for arm's length pricing negates VAT liability, emphasising that transfer prices can constitute actual consideration when examining the transaction's economic and commercial reality. The CJEU distinguished active management companies like AB from passive holding companies that merely hold shares.
Further, the CJEU noted that the invoices provided no indication of service nature, hours provided, resources used, or calculation methods. Whilst tax authorities cannot refuse deductions solely for formal invoice defects when they possess sufficient information to assess substantive conditions, they may require additional evidence when invoices fail to meet formal requirements.
For substantive conditions, the CJEU confirmed that services must be actually supplied and used for taxed transactions, but emphasised that necessity or appropriateness of services is not required for VAT deduction eligibility.