United States

European Union: Dutch and UK Authorities Issue Guidance on VAT Treatment of Head Office – Branch Transactions

Mar 16, 2015
From KPMG TaxWatch

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On February 10, 2015, tax authorities in the Netherlands and the UK released their position on applying the recent decision of the Court of Justice of the European Union (ECJ) in Skandia America Corp., Case C-7/13 (Sept. 17, 2014). Recall, in Skandia, the ECJ held that services provided by a U.S. head office to its Swedish branch, which is a member of a Swedish VAT group, are subject to VAT in Sweden. The Dutch ministry of finance announced that it will not apply the Skandia rules because there is a difference between the VAT group regime in the Netherlands and the VAT group regime in Sweden.

In Revenue and Customs Brief 2 (2015), the UK tax authority, on the other hand, confirmed that UK VAT accounting will be affected by the Skandia decision and that VAT may be due in certain circumstances where it was not previously. The new rules would apply for services performed on or after January 1, 2016. According to the Brief, an overseas establishment of a UK-established entity will be seen as part of a separate taxpayer for VAT purposes when it is VAT-grouped in an EU Member State that operates “establishment only” VAT grouping provisions similar to those in Sweden. This will apply regardless of whether the UK entity is part of a VAT group. Consequently, services provided by the overseas VAT-grouped establishment to the UK establishment will be treated as sales made in the UK, and the UK entity will be required to self-assess VAT if the services are taxable. Currently, these services would be disregarded as intra-party supplies. Services provided by the UK establishment to the overseas VAT-grouped establishment will be treated as sales made outside the UK and not subject to UK VAT. Accordingly, these services will need to be taken into consideration in computing the input tax deduction right of the UK establishment. In addition, the UK establishment will likely be required to report these services on the European Sales Listing. The tax authority will confirm which other member states operate Swedish-style “establishment only” VAT grouping following the Skandia decision as soon as possible, and update its guidance accordingly. For more information on Skandia, please contact Frank B. Sangster at (267) 256-1680 or Sandy Nicholson at (408) 367-2801.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.