France: Input VAT deductions, services provided by head office to branches (Conseil d’Etat decision)

France: Input VAT deductions

France’s high tax court (Conseil d’Etat) issued a decision that applied, for the first time, a judgment from the Court of Justice of the European Union (CJEU) to allow a deduction of input value added tax (VAT) for services supplied by a head office to its branches established abroad that were members of a domestic (local) VAT group.


The case is: BNP Paribas Securities Services, n°435295 (4 November 2020)

CJEU judgment

The CJEU in Skandia America Corporation (C-7/13, 17 September 2014) determined that services supplied by a principal establishment in a third country (the United States) to its branch established in an EU Member State (Sweden) were taxable transactions when the Swedish entity was a member of a VAT group, as this group could be considered to be a single taxable person in Sweden. The VAT group, thus, was liable for the tax under the reverse-charge mechanism.

The existence of a branch belonging to the VAT group in Sweden led the CJEU to conclude that the (taxable) services were supplied to the VAT group itself (considered to be a single taxable person). The wording of the CJEU judgment explicitly rejected a claim that the supplies of services were merely internal transactions made within the same legal entity.


The taxpayer—a company established in France and engaged in financial services—provided various services (such as IT services) to its branches established in the EU.

During audit, the French tax authorities questioned VAT recovery for expenses incurred in relation to transactions between the taxpayer and its foreign branches that were members of VAT groups, and considered that these transactions were outside the scope of VAT. However the tax authorities allowed the recovery of a portion of the input VAT after taking into account the portion of revenue subject to VAT as realized by these branches in their country of establishment.

A French lower court noted that the branches were members of VAT groups and therefore benefited from the status of being taxable persons separate from their French head office, and observed that the taxpayer did not provide any details about the transactions conducted by the VAT groups established abroad (whether they were subject to tax or exempt from tax in their respective countries) thereby making it impossible to determine the recovery of the input VAT.

On appeal, the Supreme Tax Court (Conseil d’Etat) followed articles 2 and 11 of Directive 2006/112, as interpreted by the CJEU in the Skandia judgment, that "supplies of services from a main establishment to its branch established in another Member State constitute taxable transactions when the branch is a member of a VAT group.”

For the French Supreme Tax Court, the recovery of the input VAT on expenses incurred by the head office must depend on the singular analysis of re-invoicing to the VAT groups, but not regarding the subsequent transactions of these groups, and because the IT services at issue gave rise to a right of deduction, the French head office should be able to recover the VAT credits.

The high tax court, thus, reversed and remanded the decision of the lower court. 

KPMG observation

The decision applying the Skandia judgment for the first time in France highlights various considerations for taxpayers regarding services provided by head offices to their branches that belong to a domestic VAT group in another EU Member State.

Read a November 2020 report [PDF 125 KB] prepared by the KPMG member firm in France

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