Policy paper

Revenue and Customs Brief 18 (2015): VAT grouping rules and the Skandia judgement

Published 30 October 2015

Purpose of this Brief

This brief follows on from Revenue and Customs Brief 2 (2015) (10 February 2015). This set out the position of HM Revenue and Customs (HMRC) following the decision of the Court of Justice of the European Union (CJEU) in Skandia America Corp. (USA), filial Sverige (C-7/13).

This Brief confirms the UK VAT changes resulting from the Skandia judgement and provides details of which other member states operate ‘establishment only’ VAT grouping.

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.

Background

Details of the Skandia America Corporation decision can be found in Revenue and Customs Brief 2 (2015). This outlines the VAT treatment that applied before the Skandia decision, how VAT treatment will change as a result of the judgment and the date when the change will take effect.

UK VAT changes with effect from 1 January 2016

The following changes are for UK VAT purposes, covering supplies treated as made in the UK under place of supply rules and input tax recovery by UK VAT registrations.

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.

Therefore businesses must treat intra-entity services provided to or by such overseas 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 the 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

As announced in February 2015 in Revenue and Customs Brief 2 (2015), these changes in treatment must be applied to services performed on or after 1 January 2016. 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.

The above changes are only required where the member state of the VAT-grouped overseas establishment has implemented the Skandia decision and is requiring intra-entity transactions between this establishment and the UK establishment to be treated as supplies for VAT purposes. The overseas establishment should take steps to establish with its member state tax authorities if this is the case.

In particular, in the UK’s view the UK VAT changes are not required if the only VAT grouping is of the UK establishment. UK VAT grouping is ’whole entity’ and does not split the UK establishment off into a separate taxable person. The UK has informed other member states of the UK’s view on this matter.

Information on other member states’ VAT grouping

The following table outlines how the UK expects member states to operate VAT grouping in the light of the Skandia decision. This information is provided as a guide only. It is the responsibility of individual businesses to check with the relevant member state tax authority to confirm the situation and agree how it applies to their own particular circumstances.

member state	latest position
Cyprus, Finland, Germany, the Netherlands	At the time of publication the intention of these member states is uncertain
Austria, Ireland, UK	HMRC does not expect these member states to apply ‘establishment only’ VAT grouping to create intra-establishment supplies
Italy, Romania, Spain (basic method)	Italian, Romanian and basic Spanish ‘VAT grouping’ is purely administrative, treating each member as a separate taxable person and just amalgamating their VAT figures on a single return. Such ‘grouping’ does not trigger the UK VAT changes above
Belgium, the Czech Republic, Denmark, Estonia, Hungary, Latvia, Slovakia, Spain (advanced method), Sweden	HMRC expects these member states to apply ‘establishment only’ VAT grouping to create intra-establishment supplies
Bulgaria, Croatia, France, Greece, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovenia	HMRC understands these member states do not have VAT grouping

Who can I contact for further information

If you have any questions about this Revenue and Customs Brief, please contact your Customer Relationship Manager (if one is allocated to your business) or the VAT Helpline on Telephone: 0300 200 3700.