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Changes to VAT accounting following Skandia

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HMRC has issued its position regarding the UK VAT grouping rules following the CJEU decision in Skandia America Corp (USA), filial Sverige (C-7/13). In Revenue and Customs Brief 2/2015, HMRC has said that it does not believe that changes to UK grouping provisions are required, but that UK VAT accounting may be affected.

Per the briefing, an implication of the judgment is that ‘an overseas establishment of a UK-established entity is part of a separate taxable person if the overseas establishment is VAT-grouped in a member state that operates similar “establishment only” grouping provisions to Sweden’. This means that intra-entity services must be treated as supplies to or by another taxable person, and must therefore be accounted for under the place of supply rules. However, supplies made outside the UK (i.e. from a UK establishment to an overseas VAT-grouped establishment) need to be taken into account when calculating input tax for the UK establishment, and supplies which are reverse charge services should be reported on the trader’s European sales listing.

HMRC says it will update guidance soon with which other member states operate ‘establishment only’ rules, and that the change in treatment will take effect on 1 January 2016.

Tax experts Mark Agnew and Arianne Wijdeveld (Baker & McKenzie) said: ‘HMRC's interpretation of how the Skandia judgment should be implemented in the UK is surprising, which might be the result of an attempt to satisfy the European Commission and avoid the potential for infringement.’

They added: ‘The approach taken, and indeed the Skandia judgment itself, shows the difficulties in not having a harmonised VAT grouping regime throughout the EU. This new policy results in an unprecedented and illogical outcome, where the VAT treatment of a transaction under UK VAT law is wholly dependent and contingent on the question of whether, and how, other EU member states have implemented VAT grouping rules.’

Issue: 1250
Categories: News , Indirect taxes , VAT