In Danske Bank A/S, Danmark, Sverige Filial v Skatteverket (Case 812/19) (11 March 2021), the CJEU was asked to consider whether a Danish bank (D) which was a member of a Danish VAT group was to be treated as a separate taxable person from its Swedish branch as a result of the group registration.
D carried out its activities in Sweden via its Swedish branch (SF). SF was not a member of a Swedish VAT group. Neither was it a member of the Danish VAT group since, under the Danish interpretation of article 11 of Directive 2006/112/EC, group registration was limited to persons established in Denmark.
D charged SF for the use of a computer platform. The Swedish authorities considered that D and SF were separate taxable persons as a result of D’s VAT group membership, with the result that the charges represented consideration for taxable supplies by the VAT group to SF, and those supplies were subject to the reverse charge in Sweden. D argued that D and SF constituted a single taxable person, with the result that transactions between them were outside the scope of VAT.
In Skandia (Case C-7/13), it was held that where services were provided by a non-VAT grouped principal established in a third country to its VAT-grouped EU branch, that was a taxable supply to the VAT group since the branch lost its individual status as a result of grouping. The court in the instant case considered that the same principles applied despite the reversal of the circumstances, i.e. the provision of services by a VAT grouped principal to its non-VAT grouped branch. Thus, there was a taxable supply by the VAT group to SF, which was subject to the reverse charge in Sweden.
Why it matters: HMRC has always taken the view (see Revenue & Customs Brief 2/2015) that the Skandia decision had no direct application for group registration in the UK, as the UK legislation allowed for ‘whole entity’ group registration, rather than ‘establishment only’ which is the rule in Sweden (and Denmark). It did, however, have ramifications for overseas establishments of UK VAT groups, if that VAT group was in a member state which operated ‘establishment only’ rules. This decision indicates that ‘reverse Skandia’ applies in the same way as Skandia. It also suggests that the UK policy of allowing persons with UK establishments (as opposed to persons established in the UK) to be members of a UK VAT group may have been ultra vires. This may no longer be of any significance, but the further ramifications of Skandia and ‘reverse Skandia’ are likely to still be relevant in relation to transactions between UK VAT groups with EU branches, and EU VAT groups with UK branches – particularly in respect of partly exempt businesses.
Philippe Gamito, indirect tax adviser at Baker McKenzie, observed: 'The Danske Bank judgment upholds that any supply between a branch and its overseas head office falls within the scope of VAT provided that one establishment, either the branch or the head office, is member of an (EU) VAT group. The consequences of this interpretation are great for financial services businesses that have global operations and establishments located within and outside the EU. Previously disregarded cross-border services are now likely to fall in the scope of VAT, creating challenges in terms of VAT liability, input tax recovery as well as compliance and administrative obligations. Some EU member states will come under pressure to clarify their position on this issue, whilst others will take comfort that their current guidance already complies with Danske Bank. The impact of the judgment in the UK should remain limited, at least for now.'
In Danske Bank A/S, Danmark, Sverige Filial v Skatteverket (Case 812/19) (11 March 2021), the CJEU was asked to consider whether a Danish bank (D) which was a member of a Danish VAT group was to be treated as a separate taxable person from its Swedish branch as a result of the group registration.
D carried out its activities in Sweden via its Swedish branch (SF). SF was not a member of a Swedish VAT group. Neither was it a member of the Danish VAT group since, under the Danish interpretation of article 11 of Directive 2006/112/EC, group registration was limited to persons established in Denmark.
D charged SF for the use of a computer platform. The Swedish authorities considered that D and SF were separate taxable persons as a result of D’s VAT group membership, with the result that the charges represented consideration for taxable supplies by the VAT group to SF, and those supplies were subject to the reverse charge in Sweden. D argued that D and SF constituted a single taxable person, with the result that transactions between them were outside the scope of VAT.
In Skandia (Case C-7/13), it was held that where services were provided by a non-VAT grouped principal established in a third country to its VAT-grouped EU branch, that was a taxable supply to the VAT group since the branch lost its individual status as a result of grouping. The court in the instant case considered that the same principles applied despite the reversal of the circumstances, i.e. the provision of services by a VAT grouped principal to its non-VAT grouped branch. Thus, there was a taxable supply by the VAT group to SF, which was subject to the reverse charge in Sweden.
Why it matters: HMRC has always taken the view (see Revenue & Customs Brief 2/2015) that the Skandia decision had no direct application for group registration in the UK, as the UK legislation allowed for ‘whole entity’ group registration, rather than ‘establishment only’ which is the rule in Sweden (and Denmark). It did, however, have ramifications for overseas establishments of UK VAT groups, if that VAT group was in a member state which operated ‘establishment only’ rules. This decision indicates that ‘reverse Skandia’ applies in the same way as Skandia. It also suggests that the UK policy of allowing persons with UK establishments (as opposed to persons established in the UK) to be members of a UK VAT group may have been ultra vires. This may no longer be of any significance, but the further ramifications of Skandia and ‘reverse Skandia’ are likely to still be relevant in relation to transactions between UK VAT groups with EU branches, and EU VAT groups with UK branches – particularly in respect of partly exempt businesses.
Philippe Gamito, indirect tax adviser at Baker McKenzie, observed: 'The Danske Bank judgment upholds that any supply between a branch and its overseas head office falls within the scope of VAT provided that one establishment, either the branch or the head office, is member of an (EU) VAT group. The consequences of this interpretation are great for financial services businesses that have global operations and establishments located within and outside the EU. Previously disregarded cross-border services are now likely to fall in the scope of VAT, creating challenges in terms of VAT liability, input tax recovery as well as compliance and administrative obligations. Some EU member states will come under pressure to clarify their position on this issue, whilst others will take comfort that their current guidance already complies with Danske Bank. The impact of the judgment in the UK should remain limited, at least for now.'
