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HM Revenue and Customs Brief 2/15-VAT grouping rules and the Skandia judgement


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Date issued 10 February 2015.

Purpose of this brief

Revenue and Customs Brief 37/2014 (13 October 2014) explained that HM Revenue and Customs (HMRC) was considering the effect of the judgment of the Court of Justice of the European Union (CJEU) in Skandia America Corp. (USA), filial Sverige (C-7/13) on the UK VAT grouping provisions. This brief notifies the outcome and provides further guidance.

Who should read this brief

UK VAT-registered traders who are members of a VAT group in the UK or another EU member state, and have establishments (branches or head offices) in other member states.


Skandia America Corporation was a company incorporated in the United States, with a fixed establishment (a branch) in Sweden. The Swedish branch became part of a Swedish VAT group. The Swedish tax authority viewed services provided by Skandia America Corporation 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, following the decision in FCE Bank (C-210/04). 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. The CJEU ruled that consequently the branch in Sweden became part of single taxable person (the group) different to the taxable person of the US head office. So the provision of IT services by the head office to its branch was a supply between 2 separate taxable persons and so liable to VAT. The Swedish VAT group had to account for VAT on those services under the reverse charge.

Under the UK’s VAT grouping provisions, a body corporate such as 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. Therefore 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

Way forward

The Skandia judgment did not consider the UK’s different rules, which allow the whole body corporate into the UK group, and so did not rule this to be contrary to the VAT Directive. HMRC consequently does not consider that any changes to the UK grouping provisions are required.

The current grouping rules relating to UK VAT-grouped companies with overseas establishments will therefore be maintained. If an overseas company with a fixed establishment in the UK joins a VAT group, the whole legal entity (the company and its branches) becomes part of that taxable person.

However, UK VAT accounting will be affected and VAT may become due in the circumstances set out in the next section.

VAT changes resulting from the judgment

The implication of the Skandia judgment is that 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. This will be the case whether or not the entity in the UK is part of a UK VAT group. Businesses must treat intra-entity services provided to or by such establishments as supplies made to or by another taxable person and account for VAT accordingly:

  • services provided by the overseas VAT-grouped establishment to the UK establishment will normally 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 normally be treated as supplies made outside the UK under place of supply rules. Therefore they will need to be taken into account in ascertaining input tax credit for the UK establishment. If the supplies are reverse charge services, they should be reported on the trader’s European Sales Listing of such supplies

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. Under these circumstances the anti-avoidance legislation in VATA s43(2A)-(2E) does not also apply, as the overseas establishment is not seen as part of the UK VAT group.

These changes of treatment do not require any change to UK law they follow automatically in circumstances where the overseas establishment is recognised as part of a separate taxable person.

HMRC will confirm which other member states will operate Swedish-style ‘establishment only’ VAT grouping following the Skandia decision as soon as possible, and update guidance accordingly.

When will the change take effect

This change in treatment must be applied to services performed on or after 1 January 2016. This will allow businesses time to adapt administrative and accounting procedures. Businesses may choose to apply the changes to services performed earlier than this date, provided they do so consistently for all services and establishments affected.

Relevant legislation

Article 11 of the Principal VAT Directive allows member states to treat two or more connected businesses established in the territory of that member state as a single taxable person (often called a VAT group). VAT grouping is enacted into UK legislation by s43-43D VAT Act 1994.

About the Author

© Crown Copyright 2015.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2015-02-16 09:50:01 in Tax Articles

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