The UK’s HMRC, in Customs Brief 23 issued December 11, updated guidance on how UK businesses must account for VAT on intragroup supplies of services with branches that are part of VAT groups located in the Netherlands or Spain, consistent with the European Court of Justice’s ruling in Skandia America Corp.
Revising its view in Customs Brief 18, issued October 30, HMRC concluded that the Dutch VAT grouping rules differ from the Swedish VAT grouping rules considered by the ECJ in Skandia. The Netherlands is not expected to apply “establishment only” VAT grouping to create intra-establishment supplies when an establishment in the Netherlands is VAT grouped, HMRC said.
Also, while HMRC previously concluded that Spain’s VAT grouping rules were similar to the “establishment-only” VAT rules employed in Sweden, the new guidance now concludes that Spain’s position is uncertain.
The UK tax authority in February announced that, beginning in 2016, UK businesses must account for VAT on intragroup supplies of services with branches in accordance with the Skandia ruling, where the ECJ concluded that services provided by a US company to its Swedish branch, a member of a Swedish VAT group, were subject to VAT in Sweden.
HMRC said in the February announcement 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, unlike the conclusion in Skandia, 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.
Nonetheless, HMRC said the Skandia case still must be taken into account, and VAT may be due, in cases where an overseas establishment of a UK-established entity operates in Sweden or in a country with similar VAT grouping laws that provide that only the local branch, and not the entire entity, can be part of a VAT group. In such cases, the local branch will be treated as part of a separate taxable person from the UK company for VAT purposes in cases where there is an intragroup supply of services, HMRC said.
So far, the UK has identified Belgium, the Czech Republic, Denmark, Estonia, Hungary, Latvia, and Slovakia as countries that have VAT grouping laws similar to Sweden’s.
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