Can Spanish Taxpayers Still Rely on the FCE Bank Principle?

The principle of unity of the taxable person states that services between a branch and its head office are outside the scope of VAT since the branch is not independent of its head office.
However, recent VAT grouping judgments from the Court of Justice of the European Union (CJEU) seem to conclude that VAT grouping snaps up the link between a branch and its head office, resulting in the two establishments being treated as two separate persons for VAT purposes.
The Spanish Tax Authorities (STA) have taken a tougher stand on the orthodox principle of unity of the taxable person, considering that the Spanish branches of EU banks and insurance companies are in fact ‘independent’ and, therefore, any services provided by an overseas head office and received by a Spanish branch fall within the scope of VAT.
This aggressive interpretation by the STA has the potential of having a material impact on businesses’ bottom line and is likely to result in years of litigation, probably up to the CJEU, creating unwelcome legal risks for current branch structures.