VAT on supplies by company HQ to a foreign branch: New French guidance

You don’t normally expect VAT on transactions between a company’s headquarters and branches of the same legal entity. However, France has recently updated its guidance, following a Court of Justice ruling, clarifying an important exception. 

According to the guidance, VAT is due on services provided by a company’s HQ to an overseas branch in the following circumstances: 

• The branch is established in an EU member state
• The HQ is located in a different country from the branch in question
• The branch is a member of a VAT group

As a branch of SAC, Skandia Sverige does not operate independently and does not itself bear the economic risks arising from the exercise of its activity. In addition, as a branch, according to the national legislation, it does not have any capital of its own and its assets belong to SAC. Consequently, Skandia Sverige is dependent on SAC and cannot therefore itself be characterised as a taxable person within the meaning of Article 9 of the VAT Directive.

Tracking the case law

The French guidance follows a landmark ECJ case, Skandia America Corporation.

In their ruling, the Justices found that, as a branch of Skandia America Corp, the Swedish subsidiary Skandia Sverige “does not itself bear the economic risks arising from the exercise of its activity. In addition, as a branch, according to the national legislation, it does not have any capital of its own and its assets belong to SAC. Consequently, Skandia Sverige is dependent on SAC and cannot therefore itself be characterised as a taxable person within the meaning of Article 9 of the VAT Directive.”

However, it is also the case that Skandia Sverige is part of a VAT group “and therefore forms with the other members a single taxable person. For VAT purposes, that VAT group was allocated a registration number by the competent national authority.”

Were the legal entity to be treated as a single taxable person, that “precludes the members of the VAT group from continuing to submit VAT declarations separately and from continuing to be identified, within and outside their group, as individual taxable persons, since the single taxable person alone is authorised to submit such declarations.” 

The Justices thus found in this case that the supply by the company HQ to its Swedish subsidiary should be considered a supply to the VAT group rather than a supply by SAC to its branch. 

Stay one step ahead of changing VAT rules

As the Skandia case clearly demonstrates, VAT rules are complex and subject to change. Managing the regulatory minefield is a challenge for even the most sophisticated in-house finance team. That’s why so many leading companies rely on an integrated, outsourced VAT compliance and recovery solution that ensures your business stays ahead of VAT regulations.