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ECJ ruling on VAT groups to impact financial services

Ireland
22 Sep 2014

Banks, insurers and other financial services companies across Europe face additional VAT costs following a recent European Court of Justice (“ECJ”) judgement on 17 September 2014. Taxand Ireland explains the decision and the impact it will have on multinationals.

The ECJ ruling relates to a case between Skandia American Corporation, the US arm of the insurer, and the Swedish tax authority - Skandia America Corporation. The case was triggered by a decision by the Swedish tax authority to charge VAT on the supplies of IT services from Skandia America Corporation in the US to its Swedish branch. 

The ECJ concluded that, for VAT purposes, the services supplied for consideration by a company to a branch belonging to a VAT group must be regarded as being supplied to the VAT group and not to the branch. As the branch was the member of a VAT group, the branch could no longer be treated as being the same legal entity as its US head office for VAT purposes.

The case significantly expands the VAT net for financial services firms. Banks and insurance companies will now be required to charge VAT on services provided to EU based branches by their overseas head offices based outside the EU. As these companies typically provide VAT exempt services, this will result in a significant additional cost as they will be largely unable to recover any VAT which they incur. 

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Your Taxand contact for further queries is:
Martin Phelan
T. +353 1639 5139
E. martin.phelan@williamfry.ie

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Also published in Thomson Reuters' Taxnet Pro

Taxand's Take

Any financial services groups with branches in Ireland or any other member state should carefully monitor developments and begin considering options to alleviate any potential impact the ruling may have on their current VAT grouping structures. 

Taxand's Take Author

Martin Phelan
Taxand Board member
Ireland

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