On 11 March 2021, the Court of Justice of the European Union (CJEU) issued its ruling in case C-812/19 (Danske Bank ruling) – a case involving the Value Added Tax (VAT) treatment of the supply of services from a head office, which was part of a VAT group in Denmark, to its branch in Sweden.
The VAT burden on intra-entity transactions for businesses that operate in the European Union (EU) by using a branch structure has historically been eased by the disregard of head-office-to-branch transactions (as per the decision of the CJEU in FCE Bank, C-210/04). The subsequent decision of the CJEU in Skandia (C-7/13) began to erode the protection offered by the disregard, but left many questions unanswered on how far the principles established in that case should apply.
In the Danske Bank ruling, the CJEU confirmed that where a branch or head office is in a VAT group, the head office should be considered as a separate taxable person from its branch such that transactions between the head office and branch should be recognized for VAT purposes. Reason being, the head office was a member of a VAT group in one member state while the branch was situated in another member state, and the effects of VAT grouping should only apply on a territorial basis.
The Danske Bank case has several similarities with the earlier decision in Skandia, in which the CJEU ruled that the transaction between a head office (located outside the EU, in the US) and a branch that was part of a VAT group (in Sweden) was subject to VAT. Danske Bank deals with the scenario where it is the head office that is part of a local VAT group. Furthermore, Skandia involved a head office established outside of the EU (i.e., the United States), whereas both the head office and branch in Danske Bank are located in EU member states.
On our alert published on Baker McKenzie’s InsightPlus platform, we outline the impact and consequences of the ruling, as well as some key takeaways on specific jurisdictions
- Different consequences around the EU
- Luxembourg, Sweden and Spain – examples of territorial approach to VAT grouping
- Netherlands, the UK, and Germany – examples of an extra-territorial approach to VAT grouping
The consequences of the Danske Bank ruling are expected to vary across the EU, particularly since the individual member states have varied ways of implementing the VAT grouping rules under Article 11 of the VAT Directive. You can read our full alert – Europe: Danske Bank judgment impacts branch-head office transactions on InsightPlus
