June 2014

The Advocate General (AG) has given an opinion in the case of Skandia America Corporation Case C-7/13 being heard by the CJEU. The opinion is not binding on the court, but it implies that there should be some mechanism for taxing services which are brought into a VAT group via a branch of a foreign entity.
 
Many member states already do this, using different means. In the UK there is a special anti-avoidance measure at ss 43(2A)-(2E) of the VAT Act 1994, although this appears to be unique. Other member states apply the rule that a company loses its identity for VAT purposes when it joins a VAT group, and the VAT group itself is a separate taxable person from each of its members. Thus a supply by a US head office to its branch in an EU VAT group would be subject to VAT even if there is no onward recharge within the VAT group.
 
The AG says that if a branch is included in a VAT group then the whole company is deemed to be in the VAT group (including the head office). Charges between head office and branch do not represent supplies for VAT purposes following the earlier CJEU judgment in FCE Bank Case C-196/06. However, the AG goes on to say that there should be a mechanism for taxing onward charges within the VAT group by the branch. This would be similar to the UK measure, but would potentially also tax supplies made from in-house resources of the US head office as well as bought-in services. As such, it may be equivalent to the policy applied in Germany, where the receipt of such services is taxed unless the branch uses the services charged between head office and branch in order to provide other VAT group members with a totally different service.
 
The judgment is to be expected in 2014, but is unlikely before October.