UK businesses must adjust their accounting for VAT on intragroup supplies of services beginning in 2016 to follow the European Court of Justice’s ruling in Skandia America Corp., HMRC said in a policy briefing released February 10.
In its September 2014 decision in Skandia America Corp. v. Sweden, the ECJ concluded that supplies of services from a US company to a Swedish branch that was VAT-grouped with other companies was subject to VAT in Sweden.
The court reasoned 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.
In its policy briefing, HMRC said it has concluded that UK law on VAT grouping is structured differently from Swedish law. Unlike Swedish law, the whole company becomes part of the UK VAT group, not just the branch or the head office located in the UK, HMRC said.
As a result, services provided by an overseas unit of a company to a UK unit would not normally be treated as supplies for UK VAT purposes because the services are transactions within the same taxable person, HMRC concluded.
Nonetheless, HMRC said the Scandia case still must be taken into account, and VAT may be due, in cases where there is an intragroup supply of services and the overseas establishment of a UK-established entity operates in Sweden or in a country with similar VAT grouping laws.
HMRC said that this change in treatment must be applied to services performed on or after January 1, 2016.
HMRC also promised to issue further guidance on which EU member states have Swedish-style “establishment only” VAT grouping laws.
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