VAT grouping rules and the Skandia judgment

VAT grouping rules and the Skandia judgment

On 10 February 2015 HMRC published Revenue & Customs Brief 2/2015 VAT grouping rules and the Skandia judgment setting out its views of the impact of the judgment on the UK’s VAT grouping rules. The Revenue & Customs Brief starts off indicating that the judgment has no impact on the UK’s grouping rules and goes on to explain how the UK’s rules will change.

HMRC say this in the Revenue & Customs Brief:

“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. Businesses must treat intra-entity services provided to or by such establishments as supplies made to or by another taxable person and account for VAT accordingly…”

The change in the rules will come into effect on 1 January 2016.

There’s a chance that HMRC will be challenged over this change as it appears to be going against the generally accepted need for it to rely only on UK law rather than argue that EU law has direct effect.

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