Head office and branch: Separate taxable persons

In Danske Bank A/S v. Skatteverket, case no. C-812/19 (11 March 2021), the Court of Justice of the European Union (CJEU) held that the provision of services between the bank's Danish head office and its Swedish fixed establishment was subject to VAT.

Danske Bank A/S (Danske) has its headquarters in Denmark and operates in Sweden through a branch.

• The head office of Danske is part of a Danish VAT group.
• The Swedish branch is not part of a Swedish VAT group.
• Danske allocated IT platform costs to its establishment in Sweden.
• The Swedish tax authorities issued a ruling that the Danish VAT group and the Swedish branch should be considered two separate taxable persons.
  • This meant that the services provided by Danske to its Swedish branch fell within the scope of VAT in Sweden under the Reverse charge mechanism.

The Supreme Administrative Court in Sweden sought a preliminary ruling from the CJEU, which found that the Danish VAT group head office was a separate taxable person to the Swedish branch.

• The CJEU also commented that the EU VAT Directive provisions permitting Member States to implement VAT grouping should be interpreted in such a way that only local establishment VAT grouping is permitted in the EU.
  • This something that will need to be considered by each Member State depending on its existing provisions. VAT grouping is not consistently applied across the Member States.

Comment

This CJEU judgment could have important ramifications for EU-based businesses with branches in different member states with respect to the VAT treatment of intra-group services. HMRC has historically applied a different approach to VAT grouping to other jurisdictions and no comment has been made by HMRC yet. Advice should be sought on the application of this case where clients have head offices and branches in different countries.

Useful guides on this topic

Reverse charge: cross-border services
A UK business may be required to operate the reverse charge on services it receives from abroad.

Groups
VAT grouping allows two or more 'bodies corporate' to be treated as a single person for VAT.

External links

The Court of Justice of the European Union (CJEU) Danske Bank A/S VAT Case (C-812/19)