Historically, charges between a head office and its overseas branches have been ignored for VAT purposes. The CJEU has in the FCE Bank case (C-210/04) held that where services are supplied between a head office and a branch, there is no supply for VAT purposes because the branch and the head office are the same legal person. Generally, this still remains the position.
However, in the Skandia case (C-7/13), the CJEU ruled that where an overseas branch is a member of a VAT group, it should be treated for VAT purposes as if it were a separate taxable person. Accordingly, in circumstances where services are supplied by a head office to a branch which is a member of a VAT group (to which the head office is not), there is a supply on which VAT should be charged. This approach is generally referred to as an “establishment only” VAT grouping.
The Finnish Central Tax Board has in a recent (not yet binding) ruling (KVL:2017:46) confirmed that Finland, in principle, applies the “establishment only” VAT grouping model. In the case at hand, the Central Tax Board held that services supplied by a Finnish branch to its UK head office are subject to a VAT charge in circumstances where the UK head office is a member of a UK VAT group to which the branch does not belong.
Where the Finnish branch can recover any Finnish VAT in full, this should have little practical impact. However, this VAT (which the branch may have to account for) could be a substantial additional cost for a VAT exempt business (for example banks and insurance companies) and affected businesses may need to consider how to structure internal supplies.