6 March 2015
HMRC have issued Revenue & Customs Brief 02/15, setting out their view of how the CJEU ruling in Skandia America Corporation applies in the UK. They consider that the ruling does not apply in the UK. Consequently, they do not consider that a change to the UK law is needed. The UK VAT grouping rules include the whole of a company in a UK VAT group, rather than just the UK establishment.
However, they are recognising that there are different VAT grouping rules in other EU countries – such as Sweden, the country of the case – and state that this will have an impact on the VAT accounting in the UK. They consider that if an overseas establishment of a UK established entity is VAT grouped in a country which operates VAT grouping, so as to include only the domestic establishment and not the whole company, then the overseas establishment is part of a separate taxable person for VAT purposes.
This leads to the result that:
Services provided by the overseas establishment to the UK establishment will be treated as supplies, and therefore subject to reverse charge VAT if they are taxable in nature.
Services provided to the overseas establishment by the UK establishment are potentially supplies made outside the UK, and therefore they give rise to a right to input tax recovery and a liability to report on the EC Sales List.
These results apply irrespective of whether there is a UK VAT group.
HMRC say they will provide a list of EU Member States which operate “establishment only” VAT grouping in the same way as Sweden. They say nothing about whether the new accounting rules may apply when there is a VAT group in a non-EU country. This may be a problem they have not considered – for example VAT grouping in Norway is applied on an “establishment only” basis.
The new accounting rules in the UK must be applied to services performed from 1 January 2016 onwards, but may be applied earlier on a consistent basis. Insurers should consider whether earlier application might benefit them. Further, the new rules should reflect the treatment in the other country concerned or else there will be double taxation or nontaxation.
It seems likely that Ireland will apply the same reasoning as the UK in this, but the interpretation of other Member States may vary.