A European Court of Justice (ECJ) judgment, released Sept. 17, will result in large VAT bills for banks, insurers, and other businesses considered VAT-exempt.
The decision, Skandia America Corp. v. Sweden, concludes that supplies of services from a US company to its Swedish branch are subject to VAT in Sweden when the branch belongs to a VAT group. Previously, provision of these services were considered exempt from VAT.
The court determined that the services were deemed to have been provided to the VAT group, not the branch, and that the company and the branch cannot be considered to be a single taxable person.
Richard Iferenta, head of financial services indirect tax at KPMG in the UK said the ruling could cost UK financial firms and other VAT-exempt business hundreds of millions of pounds annually because VAT-exempt firms are unable to recover VAT incurred.
“Financial institutions are likely to examine their VAT grouping arrangements and which services they are buying in from outside the EU. Some may decide to change their existing models as a result,” Iferenta said.
See:
Update: For UK government’s October 14 reaction to Skandia, see HM
Revenue and Customs Brief 37 (2014) – VAT grouping rules
