Skandia - VAT grabs the headlines again - VAT groups and imported services
The decision of the ECJ in Skandia America Corp. (USA), filial Sverige v Skatteverket ECJ Case C‑7/13 has been widely reported.In brief, the facts of the case are that a company based outside the EU
The decision of the ECJ in Skandia America Corp. (USA), filial Sverige v Skatteverket ECJ Case C‑7/13 has been widely reported.
In brief, the facts of the case are that a company based outside the EU acted as a global purchaser of IT services which it supplied to its Swedish branch. The Swedish branch was registered as a VAT group with other related Swedish companies. Under normal circumstances, no supply would be recognised between a company's head office and its branch so the reverse charge to VAT would not apply to the importation of the services. The first question referred to the Court was whether:
"… supplies of externally purchased services from a company’s main establishment in a third country to its branch in a Member State, with an allocation of costs for the purchase to the branch, constitute taxable transactions if the branch belongs to a VAT group in the Member State."
The court actually answered a wider question (in that it was not restricted to supplies of externally purchased services) in ruling 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."
On this basis, the VAT group was liable to account for the reverse charge on the imported services.
Clearly, then, this is going to result in increased VAT costs for partially exempt VAT groups in this position.
A planning point appears to arise where a partially exempt branch consumes at least part of the imported services (rather than supplying them on to other companies within and outside the VAT group). In such cases, the branch should consider being removed from the VAT group – the import of services from its head office will then remain outside the scope of VAT.
In brief, the facts of the case are that a company based outside the EU acted as a global purchaser of IT services which it supplied to its Swedish branch. The Swedish branch was registered as a VAT group with other related Swedish companies. Under normal circumstances, no supply would be recognised between a company's head office and its branch so the reverse charge to VAT would not apply to the importation of the services. The first question referred to the Court was whether:
"… supplies of externally purchased services from a company’s main establishment in a third country to its branch in a Member State, with an allocation of costs for the purchase to the branch, constitute taxable transactions if the branch belongs to a VAT group in the Member State."
The court actually answered a wider question (in that it was not restricted to supplies of externally purchased services) in ruling 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."
On this basis, the VAT group was liable to account for the reverse charge on the imported services.
Clearly, then, this is going to result in increased VAT costs for partially exempt VAT groups in this position.
A planning point appears to arise where a partially exempt branch consumes at least part of the imported services (rather than supplying them on to other companies within and outside the VAT group). In such cases, the branch should consider being removed from the VAT group – the import of services from its head office will then remain outside the scope of VAT.