Following the CJEU’s recent decision in Skandia which featured in last month’s VAT update3, HMRC has confirmed that it is considering the implications of the judgment in the UK. The CJEU found that supplies of services from a company established in a third country to its branch in a Member State constitute taxable transactions irrespective of the fact that the branch belonged to the local VAT group.

Section 43(2A) VATA 1994 provides that in particular circumstances the supply of services between VAT group members are subject to tax. In the light of the Skandia decision it is likely that this section will be extended to include any services provided by a foreign head office to a VAT-grouped branch.

HMRC has indicated that it will publish further guidance shortly. For the time being, businesses are to follow the existing guidance.

To read Revenue and Customs Brief 37: (2014) VAT Grouping Rules click here.