VAT and services between the home country company and a foreign fixed establishment

31 March 2021 - Mutual services between a home country company and its branch (fixed establishment) are generally not subject to VAT because they are regarded as one integrated taxpayer. However, there are some exceptions.

On 11 March 2021, the European Court of Justice (ECJ) handed down a long-awaited VAT ruling in a Danske Bank case (C-812/19). In this case, the ECJ ruled that the services provided by the Danish home country company to its Swedish fixed establishment were subject to VAT.

This ruling may have a major impact on businesses that have no or a limited right of deduction of VAT.

Case study and VAT implications Danske bank

Danske Bank's home country company in Denmark is part of a VAT tax entity. The home country company charges costs for IT services to its fixed establishment in Sweden.

The ECJ rules that the Swedish fixed establishment cannot be part of the Danish VAT tax entity. The VAT tax entity does not operate across countries’ borders. As a result, the Swedish fixed establishment and the Danish home country company are regarded as two separate taxpayers. The IT services provided by the Danish headquarters to the fixed establishment in Sweden are therefore subject to VAT.

Implications for Dutch practice

In practice, the Dutch Tax Administration is of the opinion that a home country company and its fixed establishment form a single taxpayer for VAT purposes. The current view is that the existence of a VAT tax entity does not change this fact. This view is also confirmed in a Dutch policy decision.

At the moment, it is still unclear how the Dutch Tax Administration will apply the recent ECJ ruling in practice.

Want to know more?

If you have a home country company or a fixed establishment abroad, it is important to identify the consequences of the Danske Bank ruling. Do you want to know more about the VAT taxation of mutual services between a home country company and its fixed establishment? If so, please contact Eline Polak by e-mail or by telephone: +31 (0)88 277 23 25 or Bert Laman by e-mail of by telephone: +31 (0)88 277 12 61. They will be happy to help you.

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