The briefing note, issued today, has implications for groups such as international life companies which may mean that services supplied between the headquarters of a company and its branches will become subject to VAT.
Currently, services such as IT are VAT-free across group businesses but the prospect here is that they will now be subject to VAT which, in the UK, is levied at 20%.
The Court of Justice of the European Union made its decision last year in the case of Skandia America Corp. (USA), filial Sverige (C-7/13).
HMRC said “the implication of the Skandia judgment is that an overseas establishment of a UK-established entity is part of a separate taxable person” and therefore “businesses must treat intra-entity services provided to or by such overseas establishments as supplies made to or by another taxable person and account for VAT accordingly”.
It added that from the UK’s perspective, the UK VAT changes are not required if the only VAT grouping is of the UK establishment.
HMRC further outlined how the UK expects member states to operate VAT grouping in the light of the Skandia decision and pointed out that in the cases of Cyprus, Finland, Germany and the Netherlands the intention of these member states was uncertain.
