The Court of Justice of the European Union (CJEU) in a January 2019 judgment resolved a value added tax (VAT) dispute between the taxpayer and the French VAT authorities concerning how the expense allocation of a branch located in France (whereas the head office was located in the UK) would be determined in order to calculate the input VAT recovery right.
The taxpayer’s UK head office disposed of a VAT-registered branch in France. The French branch provided two categories of supplies:
At issue was the input VAT recovery of the French branch on the costs incurred for the provision of the supplies to its UK head office. There were two questions referred to the CJEU:
The CJEU, regarding the input VAT recovery right of the French branch, conducted a two-step analysis based on the type of expenses incurred by the branch:
Given the CJEU judgment, the calculation methods recommended would not be easy to implement by taxable persons. Rather, taxable persons having an establishment in another EU country and bearing VAT on costs in that country will now need to establish specifically how these supplies give right to deduction in both countries. Furthermore, this would imply sufficient knowledge of the other relevant country’s law in each case. Finally, certain issues remain unanswered. Therefore, situations when an establishment located outside the EU or when the head office and/or the branch would be members of a VAT group remain unsolved.
The recommended calculations could possibly result in greater complexity for taxpayers with head office-branch structures.
Read a February 2019 report prepared by the KPMG member firm in Luxembourg
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