The Court of Justice of the European Union (CJEU) has issued a ruling on whether or not supplies made for consideration by a company established in a third country to its branch in Sweden are subject to VAT when the branch is a member of a VAT group, and if so, whether or not the VAT group is liable for paying the VAT.
The case involved Skandia America Corp. (SAC), a U.S. company acting as global purchasing company for IT services for the Skandia Group. SAC carried out its activities in Sweden through its branch, Skandia Sverige, which is a member of a VAT group registered in Sweden.
SAC distributed externally purchased IT services to the branch, which processed the IT services to produce the final product that was then distributed to various member companies of Skandia Group. A mark-up of 5% was charged on each supply of service.
The Swedish tax authorities decided to charge VAT on the supplies and deemed SAC and its Swedish branch liable for payment. The branch appealed with the Stockholm Administrative Court, who then referred to the CJEU for a preliminary ruling.
The CJEU's ruling based on the UE VAT Directive is summarized as follows:
Supplies of services made by an establishment in a third country to a taxable person in Sweden are subject to VAT. By itself the branch would not be considered a taxable person because it does not operate independently and does not itself bear the economic risks arising from the exercise of its activity.
However, the branch is a member of a registered VAT group which is considered a single taxable person. Therefore supplies made to the branch for consideration are considered supplies made to the group and are subject to VAT. Furthermore, because the supplier of the services is not established in Sweden, the VAT group as a taxable person receiving the services is liable for paying the VAT.