Further to the CJEU’s surprise decision in Skandia2, HMRC has released guidance on the effects of the judgment. The case relates to VAT grouping rules. The Swedish VAT grouping rules at issue in Skandia permitted branches of overseas companies to be members of a VAT group. In Skandia, the CJEU found that if branches are VAT-grouped, the VAT group and the foreign company are to be regarded as separate taxable persons. Consequently, services supplied by the foreign company to its branch could not be disregarded for VAT purposes.

HMRC’s guidance distinguishes the facts in Skandia from the UK’s rules. In the UK, a whole legal entity (the company and its branches) may be VAT-grouped, consequently, HMRC’s view is that the CJEU did not consider the UK rules and they need not be changed.

Businesses need to be aware, however, that if they have UK branches operating in countries which have systems similar to the Swedish model at issue in Skandia the VAT treatment is likely to change (a list of relevant countries is to be released shortly by HMRC).

To read Business Brief 2/2015 click here.