On 10 February 2015 HMRC published a brief on the application of the decision of the Court of Justice of the European Union (CJEU) in Case C-7/13 Skandia America Corp. (USA), filial Sverige v. Skatteverket of 17 September 2014 for VAT group rules in the UK.

Skandia America was US-incorporated with a Swedish branch, which became part of a Swedish VAT group. The Swedish tax authority viewed services provided by Skandia America to its Swedish branch as taxable transactions. Skandia disagreed on the grounds that these were intra-company transactions and consequently not supplies for VAT purposes. The matter was referred to the CJEU. The CJEU stated that under the Swedish grouping provisions only the branch that was physically located in Sweden could belong to a Swedish VAT group, and so it was different from the taxable person of the US head office. The transactions between the US head office and the Swedish branch were therefore liable to VAT.

Under the UK’s VAT grouping provisions, a company must have an establishment in the UK to join a UK VAT group. However, unlike in Sweden, the whole body corporate is part of the VAT group, not just the establishment (branch or head office) in the UK. Services provided between an overseas establishment and a UK establishment of the body are not normally supplies for UK VAT purposes, as they are transactions within the same taxable person.

Consequently, an overseas establishment of a UK-established entity is part of a separate taxable person if the overseas establishment is VAT-grouped in a member state that operates similar "establishment only" grouping provisions to Sweden. Intra-entity services provided to or by such establishments are supplies made to or by another taxable person and must account for VAT accordingly:

  • services provided by the overseas VAT-grouped establishment to the UK establishment will be treated as supplies made in the UK under place of supply rules, and subject to the reverse charge if taxable;
  • services provided by the UK establishment to the overseas VAT-grouped establishment will be treated as supplies made outside the UK under place of supply rules.

If the UK entity is in a UK VAT group, the same applies to supplies between the overseas establishment and other UK VAT group members in UK. Here, the anti-avoidance legislation in ss 43(2A)-(2E) of the VAT Act 1994 does not also apply, as the overseas establishment is not seen as part of the UK VAT group.

Revenue and Customs Brief 2 (2015): VAT grouping rules and the Skandia judgment