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VAT Grouping through a Head Office or a Branch - How does a Membership of a VAT Group Affect the Relationship between a Head Office and its Branch?

Nyqvist, Josefin LU (2015) LAGM01 20151
Department of Law
Abstract
In its ruling in FCE Bank, the CJEU stated that a supply between a head office and its branch does not constitute a taxable transaction since the head office, together with its branch, constitute one taxable person. Ten years later the CJEU ruled in Skandia America stating that the principle deriving from FCE Bank is not applicable when the branch is a member of a VAT group. This ruling generated many questions and uncertainties regarding the relationship between a head office and its branch and the concept of VAT grouping.

The VAT Directive states that a taxable person is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity”. As the CJEU stated in FCE Bank, a... (More)
In its ruling in FCE Bank, the CJEU stated that a supply between a head office and its branch does not constitute a taxable transaction since the head office, together with its branch, constitute one taxable person. Ten years later the CJEU ruled in Skandia America stating that the principle deriving from FCE Bank is not applicable when the branch is a member of a VAT group. This ruling generated many questions and uncertainties regarding the relationship between a head office and its branch and the concept of VAT grouping.

The VAT Directive states that a taxable person is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity”. As the CJEU stated in FCE Bank, a branch is dependent on its head office, why a head office and its branch together constitute one taxable person. Thus, the question deriving from the ruling in Skandia America regards whether a head office and its branch can constitute two separate taxable persons just because the branch is a member of a VAT group. I am of the opinion that a branch cannot be separated from its head office when it regards the concept of a taxable person why a head office and its branch, irrespective of the circumstances, constitute one taxable person. A branch can neither be part of a VAT group independently from its head office since the branch does not constitute a legally independent person. I namely take the view that the branch and the head office do not seize to constitute one legal person just because the branch becomes a member of a VAT group. Moreover, since cross-border VAT grouping is a disallowed concept, neither the branch nor the foreign head office should be able to become members of a VAT group that is formed in the Member State of the branch.

Furthermore, a supply of services constitute a taxable transaction if the establishment receiving the services is a legal entity separated from the supplier, since there otherwise is no supply made for consideration. Thus, for a supply made between a head office and its branch to constitute a taxable transaction, the branch has to, independently from its head office, carry out an economic business and bear the risk of the business. Since a head office and its branch constitute one legal entity, the branch does not, independently, carry out the economic activity and does not bear the economic risk of the business. Thus, the supplies made between a head office and its branch should not constitute taxable transactions. In Skandia America though, the CJEU did not discuss the concept of a taxable transaction, it merely just stated that the services supplied between the head office and the branch did constitute taxable transactions.

Based on the above-mentioned, it is of importance to discuss the application of the ruling in Skandia America since the ruling generated many questions. Initially, it should be stated that the ruling should be applicable to all Member States of the EU since the ruling derives from the concept of EU law and the principles deriving there from. Moreover, all the Members States of the EU have to comply with EU law and shall not interpret a provision of the VAT Directive in a way that is contrary to the objective of the VAT Directive. The Member States therefore have to amend their legislation in accordance with the rulings of the CJEU. However, the intentions of the CJEU could not possibly be to drive the Member States to amend their systems of VAT grouping if it results in a legislative act that, in my opinion, is contrary to EU law. These conclusions are founded on the fact that the system of VAT grouping is a well-established concept throughout the EU and on the fact that the VAT Directive allows each Member State to, in a suitable way, choose how to introduce the concept of VAT grouping. Hence, the intentions of the CJEU could not have been to restrict this possibility, but just to avoid a situation of non-taxation. Thus, it would have been more legitimate, and in accordance with the EU law, to focus on the prevention of tax evasion and tax avoidance and the situation of non-taxation instead of the relationship between a head office and its branch and the possibility to become a member of a VAT group. (Less)
Abstract (Swedish)
I EU-domstolens dom i FCE Bank menade EU-domtolen att ett tillhandahållande av en tjänst mellan ett huvudkontor och dess filial inte utgör en beskattningsbar transaktion då huvudkontoret och dess branch, tillsammans, utgör en och samma beskattningsbara person.Tio år senare dömde EU-domstolen i Skandia America där EU-domstolen menade att den princip som härrör från domen i FCE Bank inte är tillämplig när en filial är en medlem i en momsgrupp. Denna dom har föranlett många frågor och osäkerheter gällande relationen mellan ett huvudkontor och dess filial men samt synen på momsgrupper.

Mervärdesskattedirektivet definierar begreppet beskattningsbar person som den person ”som, oavsett på vilken plats, självständigt bedriver en ekonomisk... (More)
I EU-domstolens dom i FCE Bank menade EU-domtolen att ett tillhandahållande av en tjänst mellan ett huvudkontor och dess filial inte utgör en beskattningsbar transaktion då huvudkontoret och dess branch, tillsammans, utgör en och samma beskattningsbara person.Tio år senare dömde EU-domstolen i Skandia America där EU-domstolen menade att den princip som härrör från domen i FCE Bank inte är tillämplig när en filial är en medlem i en momsgrupp. Denna dom har föranlett många frågor och osäkerheter gällande relationen mellan ett huvudkontor och dess filial men samt synen på momsgrupper.

Mervärdesskattedirektivet definierar begreppet beskattningsbar person som den person ”som, oavsett på vilken plats, självständigt bedriver en ekonomisk verksamhet, oberoende av dess syfte och resultat”. EU-domstolen påpekade i sin dom i FCE Bank att en filial är beroende av det huvudkontor till vilket filialen tillhör, varför ett huvudkontor och dess filial, tillsammans utgör en och samma beskattnignsbara person. I Skandia America uppstod dock frågan om ett huvudkontor och en filial kan utgöra två separata beskattningsbara personer när filialen ingår i en momsgrupp. Jag menar att en filial inte kan separeras från sitt huvudkontor när det gällander definitionen av en beskattningsbar person, varför ett huvudkontor och dess filial, oavsett omständigheterna, utgör en och samma beskattningsbara person. Jag anser nämligen att ett huvudkontor och dess filial inte upphör att utgöra en och samma juridiska person bara för att filialen tillhör en momsgrupp. Som ett resultat av detta tillsammans med det faktum att gränsöverskridande momsgrupper inte är tillåtna enligt EU-rätten, borde varken filialen eller huvudkontoret bli inkluderade i en momsgrupp i de fall där filialen och huvudkontoret är etablerade i olika medlemsstater och momsgruppen är upprättad i samma medlemsstat som filialen.

Vidare definierar Mervärdesskattedirektivet begreppet beskattningsbar transaktion. Ett tillhandahållande av en tjänst utgör en beskattningsbar transaktion om mottagaren av tjänsten är en juridisk enhet vilken är separerad från tillhandahållaren. Om så inte är fallet utgör tillhandahållandet inget tillhandahållande mot ersättning och transaktionen utgör därmed inte en beskattningsbar transaktion. Följaktligen krävs det att filialen, oberoende av sitt huvudkontor, bedriver en ekonomisk verksamhet och även bär risken för denna verksamhet för att en transaktion mellan ett huvudkontor och en filial skall utgöra en beskattningsbar transaktion. Baserat på den faktiska relationen mellan ett huvudkontor och en filial kan slutsatsen dras att transaktionerna mellan ett huvudkontor och en filial inte bör utgöra beskattningsbara transaktioner. Frågan kring huruvida transaktionerna i Skandia America utgjorde beskattningsbara transaktioner eller inte blev dock aldrig behandlad av EU-domstolen i Skandia America. EU-domstolen fastställde nämligen bara att transaktionerna mellan huvudkontoret och dess filial skulle utgöra beskattningsbara transaktioner, men redogjorde aldrig för varför.

I och med det ovan sagda är det av vikt att diskutera till vilken utsträckning EU-domstolens dom i Skandia America kommer att tillämpas, speciellt då domen har föranlett många frågor. Inlednignsvis kan det kosntateras att domen borde tillämpas bland alla medlemsstater inom EU då domen grundar sig på EU-rätten och de principer som följer därav. Dessutom måste alla medelmsstater följa det som framgår av EU-rätten och därmed inte tolka de olika artiklarna i Mervärdesskattedirektivet på ett sätt som strider mot syftet med detta direktiv. Följaktligen måste medlemsstaterna inte bara anpassa sig efter Mervärdesdirektivet utan även efter EU-domstolens praxis. Vad gäller Skandia America kan EU-domstolen däremot inte ha haft som avsikt att tvinga de olika medlemsstaterna att anpassa deras mervärdesskattesystem, och då reglerna kring momsgrupper, på ett sätt som resulterar i att medlemsstaternas momslagar strider mot EU-rätten, vilket de tvingas göra om de följer vad som sägs i EU-domstolens dom i Skandia America. Jag grundar detta resonemang på det faktum att systemet med momsgrupper är väletablerat inom EU och tillåter varje medlemsstat att, på ett sätt som de anser lämpligt, introducera momsgrupper i deras momslagar. Baserat på detta menar jag att EU-domstolen inte kan ha haft som avsikt att begränsa möjligheten att införa momsgrupper, utan borde snarare haft som avsikt att förhindra skatteflykt. Därmed hade det varit mer befogat att, i enlighet med EU-rätten, fokusera på förhindrandet av skatteflykt och situationen där beskattning av transaktionerna mellan huvudkontoret och filialen uteblir istället för på den faktiska relationen mellan ett huvudkontor och dess filial samt möjligheterna att ingå i en momsgrupp. (Less)
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author
Nyqvist, Josefin LU
supervisor
organization
course
LAGM01 20151
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Skandia America, Taxable person, Taxable transaction, VAT-grouping, EU law, Tax law, VAT
language
English
id
5274452
date added to LUP
2015-04-10 14:12:55
date last changed
2015-04-10 14:12:55
@misc{5274452,
  abstract     = {In its ruling in FCE Bank, the CJEU stated that a supply between a head office and its branch does not constitute a taxable transaction since the head office, together with its branch, constitute one taxable person. Ten years later the CJEU ruled in Skandia America stating that the principle deriving from FCE Bank is not applicable when the branch is a member of a VAT group. This ruling generated many questions and uncertainties regarding the relationship between a head office and its branch and the concept of VAT grouping.

The VAT Directive states that a taxable person is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity”. As the CJEU stated in FCE Bank, a branch is dependent on its head office, why a head office and its branch together constitute one taxable person. Thus, the question deriving from the ruling in Skandia America regards whether a head office and its branch can constitute two separate taxable persons just because the branch is a member of a VAT group. I am of the opinion that a branch cannot be separated from its head office when it regards the concept of a taxable person why a head office and its branch, irrespective of the circumstances, constitute one taxable person. A branch can neither be part of a VAT group independently from its head office since the branch does not constitute a legally independent person. I namely take the view that the branch and the head office do not seize to constitute one legal person just because the branch becomes a member of a VAT group. Moreover, since cross-border VAT grouping is a disallowed concept, neither the branch nor the foreign head office should be able to become members of a VAT group that is formed in the Member State of the branch.

Furthermore, a supply of services constitute a taxable transaction if the establishment receiving the services is a legal entity separated from the supplier, since there otherwise is no supply made for consideration. Thus, for a supply made between a head office and its branch to constitute a taxable transaction, the branch has to, independently from its head office, carry out an economic business and bear the risk of the business. Since a head office and its branch constitute one legal entity, the branch does not, independently, carry out the economic activity and does not bear the economic risk of the business. Thus, the supplies made between a head office and its branch should not constitute taxable transactions. In Skandia America though, the CJEU did not discuss the concept of a taxable transaction, it merely just stated that the services supplied between the head office and the branch did constitute taxable transactions.

Based on the above-mentioned, it is of importance to discuss the application of the ruling in Skandia America since the ruling generated many questions. Initially, it should be stated that the ruling should be applicable to all Member States of the EU since the ruling derives from the concept of EU law and the principles deriving there from. Moreover, all the Members States of the EU have to comply with EU law and shall not interpret a provision of the VAT Directive in a way that is contrary to the objective of the VAT Directive. The Member States therefore have to amend their legislation in accordance with the rulings of the CJEU. However, the intentions of the CJEU could not possibly be to drive the Member States to amend their systems of VAT grouping if it results in a legislative act that, in my opinion, is contrary to EU law. These conclusions are founded on the fact that the system of VAT grouping is a well-established concept throughout the EU and on the fact that the VAT Directive allows each Member State to, in a suitable way, choose how to introduce the concept of VAT grouping. Hence, the intentions of the CJEU could not have been to restrict this possibility, but just to avoid a situation of non-taxation. Thus, it would have been more legitimate, and in accordance with the EU law, to focus on the prevention of tax evasion and tax avoidance and the situation of non-taxation instead of the relationship between a head office and its branch and the possibility to become a member of a VAT group.},
  author       = {Nyqvist, Josefin},
  keyword      = {Skandia America,Taxable person,Taxable transaction,VAT-grouping,EU law,Tax law,VAT},
  language     = {eng},
  note         = {Student Paper},
  title        = {VAT Grouping through a Head Office or a Branch - How does a Membership of a VAT Group Affect the Relationship between a Head Office and its Branch?},
  year         = {2015},
}