6 October 2014
The Court of Justice of the European Communities (CJEU) ruled on 17 September 2014 that a VAT group in an EU country is a separate taxable person for VAT purposes. The case involved was Skandia America Corporation Case C-7/13. The revelation is that a company or other entity loses its identity for VAT purposes when it joins a VAT group. In turn this means that a charge from head office to branch, branch to head office, or branch to branch may be subject to VAT, the ramifications of which are far reaching.
One of the greatest difficulties arising from this judgment is that different Member States may interpret it differently. The reactions of the various Member States are awaited, however it seems possible that some will recognise only VAT groups in their own country for these purposes and others will recognise that a VAT group in another country is a separate taxable person too.
All insurers should review their branch charging structure to ensure that double taxation does not arise. Restructuring may be needed in some cases – to be dovetailed with any restructuring for Solvency II purposes – and partial exemption methods may need updating to ensure input tax is recoverable when a cost is recharged within a company.