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HMRC internal manual

VAT Place of Supply of Services

HM Revenue & Customs
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Establishment making or receiving the supply: Identifying the establishment receiving the supply

A recipient belongs in the country of the establishment at which or for the purposes of which the supply is received.

There are no ECJ decisions on the specific issue of which establishment should be seen as receiving a supply. However, the Court of Appeal decision in Zurich Insurance Company (C3/2006/1012/CHRVF) provides some assistance when considering this question.

The Zurich Insurance Company (ZIC) was a multinational insurance group whose head office was in Switzerland. It had subsidiaries and branches in various countries both inside and outside of the EC. It decided to replace its existing software accounting systems with a new one for use throughout the group. For implementation purposes a framework agreement was entered into between ZIC in Switzerland (ZICHO) and a consultancy firm (PWCAG) that was also established in Switzerland, but which in turn sub-contracted the actual performance of the service to its associated business in the UK (PWCUK). Most of the services were provided to ZIC’s premises in the UK (ZICUK). PWCAG charged ZICHO for its consultancy services without charging any VAT, on the ground that the supply was between ZICHO and PWCAG.

There was no dispute between the parties that the supplies in question were taxable where received. However, HMRC was of the view that the supplies were from PWCAG to ZICUK and not from PWCAG to ZICHO. That being the case ZICUK should have accounted for the VAT due under the reverse charge provisions.

The VAT Tribunal upheld the appeal but that decision was subsequently overturned by the High Court and the High Court’s decision was upheld by the Court of Appeal.

Zurich was decided essentially on the particular facts of the case. However, the Court reached an important conclusion in that it determined that the place where a contract for the services to be supplied was made was not the most important consideration in deciding the place where supplies were received. That had been the view of the Tribunal. However, the Court determined that it was necessary to consider more closely what it is that the contract provides for, as the fact that a contract was signed in a particular place that place did not automatically become the place of supply. It is necessary to consider what the result is of entering into that contract. In this case the Court concluded that the contract provided for the supplies of consultancy services by PWCAG to be made to ZICUK rather than to ZICHO.

Assistance can also be found by applying the principles determined in Berkholz, DFDS and Chinese Channel, whereby the head office is the preferred establishment unless that leads to an inappropriate or irrational result for tax purposes.