Revenue and Customs Brief 18 (2015) confirms HMRC’s position on the UK VAT changes resulting from the Skandia judgement, providing details of which other member states operate ‘establishment only’ VAT grouping.

Details of the Skandia America Corporation decision can be found in Revenue and Customs Brief 2 (2015). This outlines the VAT treatment that applied before the Skandia decision, how VAT treatment will change as a result of the judgment and the date when the change will take effect.

The changes are for UK VAT purposes, covering supplies treated as made in the UK under the place of supply rules and input tax recovery by UK VAT registrations.

The implication of the Skandia judgment is that an overseas establishment of a UK-established entity is part of a separate taxable person – if the overseas establishment is VAT-grouped in a member state that operates similar ‘establishment only’ grouping provisions to Sweden. This will be the case whether or not the entity in the UK is part of a UK VAT group.

Therefore businesses must treat intra-entity services provided to or by such overseas establishments as supplies made to or by another taxable person and account for VAT accordingly:

• services provided by the overseas VAT-grouped establishment to the UK establishment will normally be treated as supplies made in the UK under place of supply rules, and subject to the reverse charge if taxable.
• services provided by the UK establishment to the overseas VAT-grouped establishment will normally be treated as supplies made outside the UK under place of supply rules. Therefore they will need to be taken into account in ascertaining input tax credit for the UK establishment. If the supplies are reverse charge services, they should be reported on the trader’s European Sales Listing of such supplies.
• If the UK entity is in a UK VAT group, the same applies to supplies between the overseas establishment and other UK VAT group members in the UK. Under these circumstances the anti-avoidance legislation in VATA s43(2A)-(2E) does not also apply, as the overseas establishment is not seen as part of the UK VAT group.

These changes of treatment do not require any change to UK law; they follow automatically in circumstances where the overseas establishment is recognised as part of a separate taxable person.

The above changes are only required where the member state of the VAT-grouped overseas establishment has implemented the Skandia decision and is requiring intra-entity transactions between this establishment and the UK establishment to be treated as supplies for VAT purposes. The overseas establishment should take steps to establish with its member state tax authorities if this is the case.