The recent judgment of the CJEU in the "Skandia" case could result in significant VAT costs for the financial services sector.

The case concerns the VAT position of cross-border recharges between a company's US head-office and its Swedish branch where the branch is a member of a VAT group in Sweden. The recharges involve external IT related services and it was contended that VAT is not applicable as the scenario involved an intra-entity supply of services. The judgment of the CJEU in the "FCE Bank" case seemed to support such VAT free treatment.  

The CJEU concluded that where a branch joins a VAT group, a supply of services from the head-office to the branch must be treated as a supply to the VAT group and in a cross border scenario, the VAT group is responsible for accounting for the VAT.

The judgment could have very significant implications for the financial services sector in Ireland as the vast majority of companies are members of VAT groups. Charges or recharges from abroad to branches established in Ireland in respect of services could result in irrecoverable Irish VAT arising.

The Irish VAT authorities are considering the implications and have invited submissions from interested parties and representative bodies. It may be possible to distinguish the Skandia case from the position in Ireland on the basis that Skandia involves a branch joining a VAT group whereas in Ireland entities not branches join VAT groups. In the Irish scenario it would seem to follow that a foreign head-office and its Irish branch should not be treated as separate parties for Irish VAT purposes even where Irish VAT grouping operates.