The CJEU’s decision in Le Crédit Lyonnais looks like a re-engineering of the Principal VAT Directive, writes Graham Elliott.
The decision in Le Crédit Lyonnais covers a situation where a single legal entity comprising several establishments one of which is an HQ makes taxable and exempt supplies and apportions VAT incurred on central HQ costs. The question is whether the normal method of partial exemption based on turnover can or must incorporate turnover of the branches.
Before revealing the decision it is worth considering HMRC’s policy as in Notice 706. This distinguishes between home supplies (within the scope of UK VAT by being a supply in the UK) and ‘foreign supplies’ (outside the scope of UK VAT but taxable elsewhere). Foreign supplies are subdivided into those which are generated directly...
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