VAT deduction for a branch: two tests and potentially numerous proportions to calculate cross-border!Published on 28/01/2019 by Jean-François Kinet
The Court of Justice of the European Union (“CJEU”) rendered its judgement in the long-awaited Morgan Stanley case (C-165/17 of 24 January 2019). It concerns the VAT deduction of costs incurred by a branch and used either for transactions of its head-office abroad (“principal establishment”) or for transactions of both the branch and its head-office. Former case-law of the CJUE had stated that services rendered between branch and head-office cannot be taken into account. They fall outside the VAT scope if the risk associated with the economic activity of the branch remained with the head-office (no endowment capital within the branch, see FCE Bank, C-210/04 of 23 March 2006).