Luxembourg Tax Alert 2021-06

Luxembourg Tax Alert 2021-06

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Danske Bank (C-812/19): confirmation of the principles applicable in Skandia

The Court of Justice of the European Union (hereafter CJEU) has just released a new decision regarding the VAT treatment of transactions between a head-office and its branch, in case one of the parties is part of a VAT group.

Reminder of the facts:

Danske Bank has its headquarters in Denmark but carries out its activity in Sweden through a branch, Danske Bank, Sverige Filial. The head-office in Denmark belongs to a Danish VAT group.

In the context of its activity, Danske Bank uses a common IT platform to operate in all the Scandinavian countries. In this respect, the Swedish branch uses the platform for the activities carried out in Sweden.  The related costs are allocated by the head-office in Denmark to the branch.

The question referred to the CJEU was to determine whether the fact that the Danske Bank head-office was part of a VAT group would have an influence on its qualification as a separate taxable person.

Indeed, due to the Skandia case released in 2015 (C-7/13), in case a head-office is located in a country different than its branch and the latter is a member of a VAT group, the transactions between the 2 should be considered as occurring between 2 different taxable persons and therefore be subject to VAT. The situation in the Danske Bank case may be referred to as “Reverse-Skandia” (as the head-office in Denmark providing the supplies is this time part of the VAT group).

The decision of the CJEU:

In its decision, the CJEU underlines that the transactions performed by the Danish head-office of Danske Bank should be considered as being performed by the VAT group to which it belongs. The VAT group is therefore the taxable person considered as rendering the supplies to the Swedish branch.

Consequently, Danske Bank Sverige Filial and Danske Bank cannot be considered as one single taxable person.

As a result from the above, the transactions between Danske Bank Sverige Filial and Danske Bank head-office (i.e. the Danish VAT group) should be assimilated to operations occurring between two distinct taxable persons and the costs invoiced by Danske Bank to its branch should be subject to VAT in Sweden under the reverse-charge mechanism.

Remark:

This case, if it confirms the principles applicable in a so-called “Reverse-Skandia” situation, does not come as a surprise. Indeed, the VAT treatment of supplies of goods and services occurring between a head-office and its branch, where one of the party is member of a VAT group are well explained by the VAT Committee in its working paper n°845 released on 17th February 2015[1]. In this respect, Luxembourg has already indicated its intention to apply such principles in its VAT legislation related to VAT groups.

It is worth noting that the situation and the resulting VAT treatment could have been different, only in case the parties would not have been part of any VAT group[2].

[1] Working paper n°845 (PDF, 577KB), available on the website of the European Commission

[2] FCE Bank plc C-210/04 would apply (i.e. head-office and branch are one single taxable person)

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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