Danske Bank: Swedish branch is a separate taxable entity
Swedish branch – separate taxable supply for VAT purposes.
The Court of Justice of the European Union (CJEU) held in the Danske Bank case (Case C-812/19) that a cost in relation to the use of a computer platform charged by the head office, Danske Bank, that is member of a VAT group in Denmark, to its Swedish branch is considered to be taxable supply for VAT purposes.
The Court followed the argumentation set out in its earlier judgment, in the Skandia case (Case C-7/13). However, the so-called ‘Reverse Skandia’ principle applies here, considering the fact that in the Skandia case the customer was the VAT grouped establishment, while in the Danske Bank the supplier was a member of a Danish VAT group.
The services between the head office and its branch are in principle non-taxable internal transactions, because the branch does not carry out any independent economic activity and therefore they form a single taxable person, are seen as one entrepreneur, unless either the head office or its branch is member of a VAT group. Considering that VAT group itself is regarded as an independent business, new and separate person, distinct from its members, services between the head office and its foreign branch may be subject to VAT therefore.
As a direct consequence of the judgment cross-border intercompany services could become subject to VAT, while businesses, with partial or even without any deduction right, such as financial services and insurance businesses, might experience increase in their VAT cost. These supply chains need to be revisited and optimized.
- under the ‘head office/branch scenario’ identify transactions with any members of a VAT group;
- obtain information about the supplies in question and determine the VAT liability;
- assess the impact on their VAT deduction right;
- determining the territorial scope of such VAT groups, especially whether the extra-territorial establishments of VAT group members, if there is any, are treated as members of a local VAT group.