VAT group: head office/branch transactions – Skandia CJEU case


On 17 September 2014, the Court of Justice of the European Union (CJEU) rendered its decision in Skandia America Corporation (case C-7/13) regarding the question whether transactions between a head office and its branch are vat’able if the branch is part of a VAT group. The Court gave a short and clear-cut answer. A VAT group is a single taxable person. The supply of services between the head office and its branch that is a member of a VAT group must be considered to be made to the VAT group as a whole and not to the branch. The supplies are made for consideration and are therefore taxable.

Following the position of the CJEU, all head office/branch transactions are subject to VAT if the branch or the head office is part of a VAT group. Head office/branch transactions are only out of scope of VAT (FCE case) if neither of them belong to a VAT group.

Belgian VAT legislation already provides that services received by a Belgian establishment from its head office/branch are subject to VAT if the Belgian establishment is a member of a Belgian VAT group (article 19bis BE VAT Code). A similar provision did not exist for services supplied to a head office/branch established in another country. This anti-channeling provision is no longer required as the CJEU confirmed that such transactions are subject to VAT.

The CJEU decision could have a significant impact on intra-group transactions where one establishment is a member of a VAT group:

– additional non-deductible VAT inthe case of a business with limited right to input VAT deduction

– impact on the VAT deduction prorata

– VAT liability

– VAT invoicing, reporting and ERP set-up changes.

In some cases, the impact of this decision could be positive (e.g. an increase of the right to deduct) and businesses could therefore consider the retroactive use of this case.

As this judgment applies in all Member States and for cross-border transactions, a review in all Member States where businesses operate using VAT groups that include branches/head offices as members is recommended.

For any questions concerning this case, please contact your regular PwC advisor.