Cross-border supplies of services between a main establishment and its branch, where the branch is a member of a VAT group.
The Court of Justice of the European Union (CJEU) has released its Judgment in Skandia America Corporation (C-7/13). This case concerns the VAT treatment of supply of services made by the main establishment of a legal entity outside of the EU to its branch in Sweden, where the branch is a member of a VAT group.
Skandia America Corporation (“Skandia”) was the global purchasing company for IT services for the Skandia group. It carried out its activities in Sweden through its branch, Skandia Sverige.
Skandia distributed externally-purchased IT services to Skandia Sverige, which has been registered for VAT purposes in Sweden as a member of a VAT group.
It should be noted that under Swedish VAT Law, two or more persons may form a VAT group, which in turn is considered as a single taxable person for VAT purposes. In Sweden, only the Swedish fixed establishment of a foreign person may belong to a VAT group (i.e. not to the foreign main establishment).
The CJEU has decided that supplies of services for consideration from a main establishment in a non-EU country to its branch in an EU Member State constitute taxable transactions when the branch belongs to a VAT group.
Based on the CJEU decision, services provided by the main establishment to its branch where the branch is a member of a VAT group should be considered as being supplied to a VAT group. In other words, a branch being a member of a VAT group cannot be considered separately in this case. This interpretation limits the application of the FCE Bank judgment (C-210/04).
This decision might be of particular importance for taxpayers in those EU Member States which allow VAT grouping and which treat similar supplies as falling outside the scope of VAT.
In Luxembourg, the VAT grouping provisions have not been implemented into VAT Law. Consequently, the Skandia case should have no direct impact in Luxembourg. However, what is not clear at this stage is whether this judgment will have indirect implications in Luxembourg – this will only become apparent in due course.
Particularly, should the Skandia judgment be applied by the EU Member States also to cross-border supplies of services between a main establishment in one EU Member State and its branch established in another EU Member State where one of them is a member of a VAT group, several questions might also arise from a Luxembourg VAT perspective. These might concern several areas, including the following:
As a consequence of the decision, businesses with a main establishment / branch structure belonging to a VAT group in an EU Member State should carefully monitor potential VAT implications of their set-up.
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