Legal Alert – CJEU: Services Supplied from a Main Establishment to Its Branch Belonging to a VAT Group Are Taxable for VAT Purposes
The Court of Justice of the European Union (CJEU) has given its judgment in the case Skandia America Corporation USA (C-7/13) which considers the VAT treatment of services supplied from a non-EU branch to a VAT group.
The background of the case is that Skandia America Corporation USA, which is established in the US and has a fixed establishment for VAT purposes in Sweden, supplied IT services to the fixed establishment (the branch). The branch is registered for VAT as part of a VAT group in Sweden. The fixed establishment processed the IT services and produced the final product which was then supplied to various companies both within and outside the VAT group.
In 2006, the CJEU had ruled in the case FCE Bank plc (C-210/04) that a fixed establishment, together with its non-resident company, must be considered as one and the same taxable person. Consequently, the fixed establishment was not to be treated as a taxable person by reason of the costs imputed to it in respect of those supplies.
The main question in the Skandia case is whether the judgment of the CJEU in the case FCE Bank plc is applicable in the relation between the head office and its Swedish fixed establishment, which is part of the VAT group, and if so, if the VAT on the services concerned is due by the service provider or the recipient of the service.
In its judgment given on 17 September 2014, the CJEU concluded that for VAT purposes, the services supplied for consideration by a company to its branch, which belongs to a VAT group, must be regarded as being supplied to the VAT group and not to the branch. As that company and the VAT group cannot be considered to be a single taxable person, the supply of such services constitutes a taxable transaction.
Further, the CJEU considered that the VAT group, as the purchaser of those services, becomes liable for the VAT payable.
In the Finnish tax practice, the service supplied by a company to its branch, which belongs to a VAT group, has not been considered a taxable transaction for VAT purposes. As the CJEU has come to a different conclusion in the case, the judgment is likely to have a significant impact on the Finnish VAT groups where one or more members are branches of foreign established companies.
Companies in the financial and insurance sector which have such a VAT group should, as a result of the judgment, consider the consequences of the case, any alternative solutions and potential actions to be taken.
The judgment of the CJEU can be read on the following website: http://curia.europa.eu/juris/document/document.jsf?text=&docid=157806&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=189966.