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Impact Of The CJEU Skandia America Judgment In The UK
Her Majesty's Revenue and Customs (HMRC) in the UK has published its reviewed position following the decision of the Court of Justice of the European Union (CJEU) in Skandia America Corp. (USA), filial Sverige (C-7/13).
Skandia America Corporation was a company incorporated in the United States, with a fixed establishment (a branch) in Sweden. The Swedish branch became part of a Swedish VAT group. The Swedish tax authority viewed services provided by Skandia America Corporation to its Swedish branch as taxable transactions. Skandia disagreed on the grounds that these were intra-company transactions and consequently not supplies for VAT purposes. The matter was referred to the CJEU.
The CJEU stated that under the Swedish grouping provisions only the branch that was physically located in Sweden could belong to a Swedish VAT group. The CJEU ruled that consequently the branch in Sweden became part of single taxable person (the group) different to the taxable person of the US head office. So the provision of IT services by the head office to its branch was a supply between two separate taxable persons, and so liable to VAT. The Swedish VAT group had to account for VAT on those services under the reverse charge. Based on the judgment:
1. Articles 2(1), 9 and 11 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that supplies of services from a main establishment in a third country to its branch in a Member State constitute taxable transactions when the branch belongs to a group of persons whom it is possible to regard as a single taxable person for value added tax purposes.
2. Articles 56, 193 and 196 of Directive 2006/112/EC must be interpreted as meaning that, in a situation such as that in the main proceedings where the main establishment of a company in a third country supplies services for consideration to a branch of that company in a Member State and where the branch belongs to a group of persons whom it is possible to regard as a single taxable person for value added tax purposes in that Member State, that group, as the purchaser of those services, becomes liable for the value added tax payable.
As per the UK Revenue and Customs Brief 18 (2015), VAT grouping rules and the Skandia judgement, the implication of the Skandia judgment in the UK is:
- that an overseas establishment of a UK-established entity is part of a separate taxable person, if the overseas establishment is VAT-grouped in a member state that operates similar “establishment only” grouping provisions to Sweden. This will be the case whether or not the entity in the UK is part of a UK VAT group.
Therefore, businesses must treat intra-entity services provided to or by such overseas establishments as supplies made to or by another taxable person, and account for VAT accordingly:
- services provided by the overseas VAT-grouped establishment to the UK establishment will normally be treated as supplies made in the UK under place of supply rules, and subject to the reverse charge if taxable
- services provided by the UK establishment to the overseas VAT-grouped establishment will normally be treated as supplies made outside the UK under place of supply rules. Therefore they will need to be taken into account in ascertaining input tax credit for the UK establishment. If the supplies are reverse charge services, they should be reported on the trader’s European Sales Listing of such supplies.
If the UK entity is in a UK VAT group, the same applies to supplies between the overseas establishment and other UK VAT group members in the UK. Under these circumstances the anti-avoidance legislation in VATA s43(2A)-(2E) does not also apply, as the overseas establishment is not seen as part of the UK VAT group.
These changes must be applied to services performed on or after 1 January 2016. This time should be used by businesses to adapt administrative and accounting procedures.