Services between head office and branch attract VAT

After the ECJ judgment in the Skandia case, the Belgian VAT administration has introduced the application of these principles into Belgian VAT legislation with its decision of 10 April 2015 (E.T.127.577). This decision confirms that taxable transactions performed by a non-Belgian established head office to its Belgian branch which is part of a Belgian VAT group are subject to VAT. The same reasoning applies when transactions are performed by a Belgian branch to a non-Belgian branch of the same company, when either one of these branches belongs to a VAT group.

It remains to be seen whether the Belgian VAT administration will also explicitly implement the Danske Bank principles but, in light of the aforementioned, we believe it is likely that latter decision would be amended or a new decision would be issued.

In addition, the ECJ seems to indicate that members of a VAT group cannot be identified by individual VAT numbers. This seems not to match with the current Belgian practice of VAT grouping which provides for a global VAT number for the VAT group, but whereby the members keep their individual VAT number for their transactions with third parties, as well as for the filing of IC sales listings by each member. The question arises whether this Belgian practice would be adjusted in view of this difference.

Based on written guidance of the Dutch state secretary, the principles of Skandia and Danske bank are not applied in Dutch practice. Under Dutch case law, a foreign head office and its branch are ‘absorbed’ in the VAT group.

In addition, the ECJ clearly restates that members of a VAT group cannot submit separate VAT returns nor have an individual VAT number. This seems not to align with Dutch current practice in which members of a VAT group keep their individual VAT number for handling with third parties. Moreover, upon request, members of a Dutch VAT group can file separate VAT returns.

The question arises whether the Dutch practice will need to be adjusted in view of these aspects.

This new decision from the ECJ hits the nail of the opinion issued by the VAT Committee on what was then the bill of law for the implementation of the VAT group in Luxembourg.

In particular, the ECJ reinforces the impact of the Skandia case and, in that sense, the comment made by the VAT Committee concerning the uncertainty of the draft bill on the relation between a head office and a branch. This new decision seems to bring an end to potential interrogations on this specific point and fills the void of the Luxembourg rules in that regard.

In addition, the ECJ clearly restates that members of a VAT group cannot be identified by individual VAT numbers, and file individual VAT returns. This comes in confirmation of previous comments questioning the validity of the Luxembourg rules which provide for a global VAT number for the group, but also for auxiliary VAT numbers to be used by the members in their transactions with third parties, as well as for the filing of European sales listings by each member.