In the area of VAT, the relationship between a head office and its foreign branches has always been a tricky one. Unlike in direct taxation where profits are attributed to a permanent establishment on the basis of a separate entity approach and the arm’s length principle, for VAT purposes a branch may qualify as independent taxable person or form a single entity with the head office. Things get even more complicated if either the branch or the head office join a VAT group. Another area of complexity is how to calculate the deductible input VAT if the branch incurs costs that are also used by the head office. The VAT legislation is silent on the above-mentioned problems and the only guidance can be found in the jurisprudence of the Court of Justice of the European Union (CJEU). This article provides an overview of the most important judgements.
Source Alexandra Bal
