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In Italy transactions within a single entity treated as supplies. FCE = no supply between branches of a single entity whether within the same country or across borders. Note that the CJEU did consider: -whether the Italian branch carried on an independent economic activity; and -whether the branch could be regarded as an independent bank; and -whether the branch held its own capital. FCE Bank plc [Case C – 210/04]
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• FCE Bank plc• Skandia• VAT implications• Direct tax implications
Inter company charges
• In Italy transactions within a single entity treated as supplies.• FCE = no supply between branches of a single entity whether within
the same country or across borders. • Note that the CJEU did consider:
- whether the Italian branch carried on an independent economic activity; and
- whether the branch could be regarded as an independent bank; and
- whether the branch held its own capital.
FCE Bank plc [Case C – 210/04]
• SAC claimed no supply to SS following FCE• CJEU held that the Swedish VAT group is to be seen as an independent entity
=> must account for reverse charge on supplies received from SAC => produces irrecoverable VAT.
• Question – is a branch an entity capable of joining a VAT group?
The Skandia case [Skandia America Corp Case C-7/13]
US coSAC
Swedish branch SS
X co Y co Z coSwedish VAT group
services
• Aimed at avoidance of VAT by exempt businesses by routing services through an overseas company/group.
• UK legislation deems there to be a supply by A co to B co [VATA 1994 S43(1)(a)]
UK anti avoidance provisions
A co’s non EU establishment
A co B cono supply
services
X coconsultants
no supply
UK partly exempt VAT
group
• CJEU decision not surprising as it ensures no avoidance – reverse charge is not avoided in the EU on services received BUT
• Does it compromise the integrity of FCE• Need for international groups to unwind branch structures (is that also
an issue for direct tax)• Gives rise to ability to recover VAT on costs incurred on making
outbound charges previously ignored.
Implications – VAT
• Supplies between branches are taxable for direct tax purposes. • Valuation issues
- what value to use for VAT?- bundled supplies
• How are the supplies valued for corporate tax purposes?• Is there a clash between direct and indirect valuations or should the same
value be used for both taxes? Is it important that the same values are used?
• Transfer pricing adjustments for direct tax could have VAT implications. • Will transfer pricing become an issue for VAT?
Implications – Direct and Indirect tax
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