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Skandia is a new
entry this year
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The ECJ case hinged on the supply by
Skandia America Corporation (SAC), a US company without an
establishment in the EU, of IT services purchased by SAC from a
third party to the company's Swedish branch, Skandia Sverige
(SKS), which had joined a Swedish VAT group. VAT was not
applied to the costs charged by SAC to SKS, a position disputed
by the Swedish tax authorities, and the question was referred
to the ECJ.
Following the principles of FCE Bank (2006), the
taxpayer argued that the supplies from SAC to SKS should be
disregarded for VAT purposes as cross-border supplies of
services from a company to its EU branch. The ECJ, however,
said the services were not a supply from SAC to its branch
(SKS), but rather, for VAT purposes, were a supply from SAC to
the VAT group to which the branch (SKS) belonged. Therefore the
supplies were taxable and the Swedish VAT group of which SKS
was a member must account for the VAT due.
The judgement caused huge concern among financial services
taxpayers, which benefit from certain VAT exemptions, because
of their frequent use of branches to conduct overseas business
and of VAT groups to minimise VAT leakage.
There is still a lack of clarity on how member states will
apply the ECJ's decision. Some national authorities have issued
brief statements pointing out that their VAT grouping rules
differ from Swedish VAT grouping rules (as the UK authority did
in October) but taxpayers remain in wait-and-see mode.
Financial services taxpayers, in particular, will not have
welcomed the uncertainty-inducing influence
the Skandia case has had during 2014.