UK and International Tax news

VAT Treatment Of Costs Recharged To Overseas Branch

Monday 29th September 2014

The CJEU has recently issued its judgment in a case involving a US resident company recharging a proportion of IT costs to its Swedish branch which formed part of a VAT group in Sweden.

In Skandia America Corp (USA) filial Sverige v Skatteverket [C-7/13], the Court held that whilst the branch did not carry out an independent economic activity distinct from its Head Office, by joining a VAT group, the branch became part of a single taxable person such that the Head Office supplied services not to the branch but to the VAT group.

The Court did not follow the earlier opinion of the Advocate General, which confirmed that cross border branch/head office transactions were not supplies for VAT purposes and this also applied to the situation of a branch in an EU VAT group, and held that the VAT group was required to account for VAT under the reverse charge rule.

This ruling is likely to have serious implications for overseas financial services groups with EU operations which buy in services from outside the EU.

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