Decision issued by the Belgian VAT authorities about Skandia America Corporation case (C-7/13)
The ECJ decided in September 2014 that, where an establishment of a legal entity joins a VAT group, then the disregard applied in the FCE Bank Judgment (C-210/04), in respect to services provided from a head office to a branch, will no longer apply. This is on the basis that the VAT group is the taxable person who receives the supply and not the branch (for more details see our previous e-tax flash).
Therefore, the services are no longer deemed to be provided to the branch with the effect that they can no longer be disregarded for VAT purposes and should as such be subject to VAT.
As expected, the Belgian VAT authorities have upheld the full application of the Skandia case in Belgium.
This implies, in practice, that:
- When purchasing taxable services localized in Belgium, the branch or the head-office must self-account for Belgian VAT when one is member of a VAT group (in Belgium or abroad). The VAT will be deductible in Belgium depending upon the actual VAT deduction right at the level of the VAT group (if a mixed taxpayer)
- The services recharged by a branch or a head-office to its foreign head-office or branch, when one is member of a VAT group, will have to be taken into account to determine the VAT deduction right (if mixed taxpayer)
When the services are taxable from a VAT perspective, the above applies regardless of whether the purchasing entity recharges the costs to another member of the VAT group in Belgium. VAT is therefore to be reverse charged in any case.
In addition, the decision points out that where the branch or the head-office located in Belgium is a mixed taxpayer using the general pro rata method in order to determine its percentage of input VAT deduction right, the latter can only determine this percentage on the basis of its own turnover (and not the one of its foreign establishments - see our previous e-tax flash in this respect).
Attention should thus be paid to the current structures in place to determine the impact of the Skandia case as interpreted by the Belgian VAT authorities, thereby also taking into account the potentially divergent views of other national VAT authorities in this respect (e.g. UK, The Netherlands).
Since the decision will take effect from July 1, 2015, taxpayers will also have to assess the impact for their past transactions.
*Decision no. E.T.127.577 dd. 3 April 2015