Services from third country branch parent subject to VAT – Skandia v Skatteverket1
In a recent preliminary ruling, the Court of Justice of the European Union (ECJ) found that supplies of services from a company established in a third country to its branch in a Member State constitute taxable transactions notwithstanding the fact that the branch belonged to the local VAT group.
Skandia America Corporation (SAC), a US company, was the global purchasing company for IT services for the Skandia group. In Sweden, SAC’s activities were carried out through its branch, Skandia Sverige (Sverige). Sverige was registered as a member of a VAT group in 2007.
SAC purchased IT services from external providers. Sverige then processed this to produce a final product, which was supplied to various companies within the Skandia group, both within and outside the VAT group. Internal invoices were issued between SAC and Sverige, with a mark-up of 5%. A further 5% margin was applied as between Sverige and the other companies in the group.
The Swedish tax authorities were of the view that VAT should apply on the supplies from SAC to Sverige. SAC challenged the ruling and the matter was referred to the ECJ.
The court concluded that because the services were supplied by a taxable person not established in Sweden, the effect of Article 196 of the Principal VAT Directive was that any VAT should apply.
In the view of the ECJ, Sverige, as a branch of SAC, could not itself be characterised as a taxable person, as it was not carrying out an independent economic activity. However, pursuant to Article 11, the VAT group of which Sverige was a part, was to be treated as a single taxable person. It was therefore the VAT group to which, for VAT purposes, the services supplied by SAC were made.
The ECJ concluded that SAC and its branch could not be considered as a single taxable person, consequently the supply of services from one to the other was taxable. It is noteworthy that the court’s approach was at odds with the opinion of the Advocate General who argued that the Swedish tax authorities should have accepted Sverige as a VAT group member, distinct from SAC, or otherwise as a separate taxable person.
This judgment will be of particular interest to financial institutions, such as banks and insurers, who often have third country headquarters.
To read the judgment click here