Roadtrip through ECJ Cases – Focus on ”Taxable person” (Art. 9) – Transactions between head offices and branches

Last update: April 16, 2025

Relevant article in the EU VAT Directive

Article 9
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.

ECJ Cases decided

Pending ECJ Cases

None

This document provides a detailed analysis of the key themes, ideas and facts from the sources provided regarding the treatment of VAT on services provided between a head office and a branch. Special attention is paid to the question of the independence of a branch as a taxable person and the influence of VAT groups on this assessment, both in domestic and cross-border situations. The case-law of the Court of Justice in the cases of FCE Bank, Skandia America Corp. (USA), Filial Sverige and Danske Bank A/S, Danmark, Sverige Filial forms the core of this analysis.

1. Independence of a Branch as a Taxpayer

A central theme in all the sources and judgments discussed is the question whether a branch should be regarded as an independent taxable person for VAT purposes in relation to the head office. The general principle that emerges from this is that independence is a crucial condition for being considered as a separate taxable person.

Absence of Independence: In FCE Bank, the Court held that a fixed establishment (branch) without its own legal personality, does not have its own capital and does not bear the economic risks of the activity independently, cannot be considered as an independent taxable person in relation to the head office. The Court stated that “… a fixed establishment which is not a separate legal person from the company to which it belongs, established in another Member State and to which the company provides services, may not be treated as a taxable person on the basis of the costs of those services attributed to it.’ [FCE Bank, para. 53]. In such a case, the head office and the branch form a single taxable person. The internal passing on of costs is then not seen as a remuneration for a taxable service, because there is no legal relationship with reciprocal services between two independent parties.
Independent economic activity: The source “VAT Head Office and Branch of the Netherlands” confirms this principle by stating that a branch “without its own legal personality and which does not independently carry out an economic activity and bears the economic risks, is in principle not considered to be an independent taxable person in relation to the head office” [VAT Head Office and Branch of the Netherlands]. This implies that for VAT purposes there must be an ‘independent economic activity in order to be regarded as a separate taxable person’ [VAT Principal and Branch of the Netherlands].

2. The Impact of VAT Groups

The possibility of forming a VAT group, as described in the sources and dealt with in the Skandia and Danske Bank cases, introduces a more complex dynamic in the assessment of independence.

VAT Group as a Single Taxable Person: Article 11 of the VAT Directive allows Member States to consider legally independent but closely related persons within their territory as a single taxable person (VAT group). The Court emphasized in Skandia that “[…] Treatment as a single taxable person prevents the members of the VAT group from continuing to submit VAT returns separately and from being identified as separate taxable persons within and outside their group, since only the single taxable person is authorised to submit such returns.’ [Skandia, para. 29]. Where a branch is part of a VAT group, services provided by a third party (including the head office) to the branch are deemed to have been supplied to the VAT group as a whole for VAT purposes.
Territorial Limitation of VAT Groups: A crucial aspect that emerges in both Skandia and Danske Bank is the territorial limitation of VAT groups. A Member State can only include entities established within its territory in a VAT group. This has important consequences for cross-border situations. In Danske Bank, the Court emphasised that “[…] the territorial restrictions laid down in Article 11 of the VAT Directive prevent the Swedish branch from forming part of the Danish VAT group.’ [Danske Bank, para. 17, 24, 29].

3. Cross-border transactions and VAT groups

The combination of the principle of independence and the functioning of VAT groups leads to specific rules for the VAT treatment of cross-border transactions between head office and branch.

Head office (part of VAT group in other country) and Branch office (not in VAT group): In Danske Bank, the Court held that where the principal establishment is part of a VAT group in one Member State and the branch in another Member State is not part of a VAT group there, they must be regarded as separate taxable persons for VAT purposes. This also applies when the head office provides services for the branch and passes on the costs. The Court concluded that “… Article 9(1) and Article 11 of Directive 2006/112/EC … must be interpreted as meaning that, for the purposes of levying value added tax (VAT), the principal establishment of a company established in a Member State and forming part of a VAT group formed on the basis of Article 11 and the branch of that company established in another Member State: must be regarded as separate taxable persons where that principal establishment provides services to that branch and passes on the costs thereof to that branch.’ [Danske Bank, para. 35]. The territorial limitation of the VAT group is decisive in this regard.
Head office (outside EU) and branch office (part of VAT group in EU): In Skandia, the Court held that services supplied by a head office in a third country (US) to its Swedish branch that is part of a Swedish VAT group constitute taxable transactions. The services are deemed to have been supplied to the VAT group as a whole (which is a separate taxable person from the head office). In this case, VAT is payable by the VAT group through the reverse taxation scheme (Article 196 of the VAT Directive). The Court stated that “… the services supplied by a company such as SAC to its branch, which, like Skandia Sverige, belongs to a VAT group, should not be regarded as being supplied to that branch for VAT purposes, but should be regarded as being supplied to the VAT group.’ [Skandia, para. 30].

4. Domestic situations: head office and branch in the same country

The sources do not explicitly answer the question of whether a head office and a branch within the same country must be registered separately for VAT purposes. However, based on the general principles, the following can be deduced:

Branch without independence: If the branch within the same country does not independently carry out an economic activity and bears the economic risks, it will probably fall under the VAT registration of the head office and therefore do not have its own VAT number. They then form a single taxable person.
VAT Group: The possibility of forming a VAT group within the same country implies that the separate legal entities before forming a VAT group can potentially have separate VAT numbers. However, the purpose of the VAT group is precisely to treat them as one taxable person with usually one VAT number for the group.

The fundamental principle remains that VAT requires the existence of an independent economic activity in order to be regarded as a separate taxable person.

5. Conclusions and implications

The case law of the Court of Justice and the general principles of the VAT Directive lead to the following important conclusions:

The independence of a branch determines whether it is considered to be a separate taxable person from the principal establishment.
VAT groups create a single taxable person within the borders of the Member State that authorised the group.
The territorial limitations of VAT groups have a significant impact on the VAT treatment of cross-border transactions between head office and branch.
Transactions between a head office that is part of a VAT group in another country and a branch that is not part of a VAT group in its country of residence are taxable between two separate taxable persons.
Services from a non-EU head office to a branch that is a member of an EU VAT group are taxable to the VAT group.

These principles highlight the complexity of intra-group VAT treatment, particularly in cross-border situations. The specific facts and circumstances of each situation, including the legal structure, the degree of economic independence and participation in VAT groups, are essential for the correct application of the VAT rules. National administrative practices that are contrary to the principles of the VAT Directive and their interpretation by the Court of Justice are not permitted.