ECJ case C-812/19 (Danske Bank) – Judgment – Head Office part of VAT group & its Branch are separate taxable persons

On March 11, 2021, the ECJissued its decision in the case C-812/19 (Danske Bank) related to the classification of supplies of services between a head office and its branch whereby the head office is part of a VAT group in the country where it is established (Denmark).

Context:

Summary

Separate Taxable Persons: The Court ruled that a principal establishment within a VAT group in one Member State and its branch in another Member State are considered separate taxable persons for VAT purposes when services are provided between them.
VAT Group Territorial Limits: Article 11 of the VAT Directive restricts VAT groups to include only entities within the same Member State, meaning the Swedish branch cannot join the Danish VAT group.
Service Transactions: Services provided by the principal establishment to the branch and cost imputations are treated as taxable transactions due to the separation created by VAT group membership.
Impact on Tax Obligations: The existence of a VAT group in one Member State affects taxation in other Member States, requiring separate VAT treatment for intra-company services.
Principle of Fiscal Neutrality: The ruling emphasizes that transactions between separate taxable persons in different VAT groups cannot be treated like internal transactions within a single entity, upholding fiscal neutrality.

Article in the EU VAT Directive

2(1), 9(1) and 11 of Council Directive 2006/112/EC

Article 2 (Taxable Transaction)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption
for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legalperson, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.

Article 9(1) (Taxable person)
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.

Article 11 (Taxable person – VAT grouping)
After consulting the advisory committee on value added tax (hereafter, the “VAT Committee”), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.
A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.

Facts

Parties Involved: Danske Bank A/S, a Danish company, operates a branch in Sweden called Danske Bank, Sverige Filial. The Swedish Tax Agency (Skatteverket) is the opposing party.
VAT Group Membership: The principal establishment of Danske Bank in Denmark is part of a Danish VAT group. However, its Swedish branch is not part of any VAT group in Sweden.
Provision of Services: The principal establishment in Denmark provides services to its Swedish branch and charges the branch for these services.
Legal Question: The main issue was whether the principal establishment and the Swedish branch should be considered separate taxable persons for VAT purposes, given that the principal establishment is part of a VAT group in Denmark.
Ruling Request: Danske Bank sought a ruling on whether the services provided by the principal establishment to the branch should be considered taxable transactions, requiring the branch to pay VAT in Sweden.

Question

Is a Swedish branch of a bank whose HQ is in another Member State to be treated as a distinct taxpayer, if the HQ is part of a VAT group of which the Swedish branch is not a part, and the HQ performs services for the branch and allocates the costs thereof to the branch?

EY
Meijburg

AG Opinion

None

Decision

Article 9 (1) and Article 11 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, for the purposes of value added tax (VAT), the main establishment of a company, located in a Member State and forming part of a VAT group established on the basis of this article 11, and the branch of this company, established in another Member State, must be considered as separate taxable persons when that main establishment provides the said branch with services for which it charges it.

Source