A judgment of the Court of Justice of the European Union (CJEU) clarifies the relationships between a branch and its head office and the right to deduct input value added tax (VAT) incurred by a permanent establishment or head office for the purposes of internal transactions.
The CJEU judgment was issued in June 2016, and examined the possibility of deducting input VAT incurred on goods and services used by a Polish branch for the purposes of internal supplies towards its Slovakian head office. In the case, the Polish branch was registered in Poland for VAT purposes. The activity of the branch consisted mainly in the production of intangibles (software components) for its Slovakian head office, which then were sold in Slovakia with application of VAT. The Polish branch carried out intra-community goods and received services falling within the scope of the reverse-charge mechanism in Poland. It also carried out incidental supplies subject to Polish VAT towards its employees.
Read a September 2016 report prepared by the KPMG member firm in Luxembourg
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