The French tax authorities updated their official guidelines on 29 December 2021 concerning services supplied between a head-office and a branch. These changes are intended to take into account the principles resulting from European case law developments, the Skandia and Danske Bank rulings, as well as their recent application by the French Administrative Supreme Court in the BNP Paribas Securities Services case (November 4, 2020, No. 435295) relating to the VAT treatment of flows between a head office and its branch when one of the two is a member of a VAT group.
As a reminder, in the Skandia case, the CJEU ruled that services supplied by a foreign head office (in this case, in the US) to its branch which is part of a VAT group in an EU Member State (in this case, Sweden), are subject to VAT, the person liable for this VAT being the VAT group according to the reverse charge mechanism. The Court thus recognized the existence of a supply of services between two distinct taxable persons for VAT purposes. This ruling had not been commented on by the French tax authorities until now.
In the Danske Bank case, the CJEU ruled that a branch receiving a supply of services from its head office in another EU Member State and belonging to a local VAT group must reverse-charge the tax due on the transaction.
In their updated guidelines, the tax authorities have fully taken into account the consequences of these rulings:
- The authorities recall that, in principle, transactions carried out between the various establishments of a single legal entity are not in principle subject to VAT;
- However, in the case of the constitution of a VAT group, the latter only includes the entities and permanent establishments located on the territory of the Member State in which it is itself located, to the exclusion of establishments located in other States;
- Thus, transactions carried out between a head office and its branch (and vice versa) constitute transactions falling within the scope of VAT when at least one of the two is a member of a local VAT group in its Member State; the same applies to relations between branches;
- On the other hand, transactions carried out between establishments belonging to the same legal entity remain outside the scope of VAT when none of the establishments is a member of a VAT group in its Member State, even if the company’s head office is a member of a group in its Member State;
- These transactions must also be taken into account in determining the provider’s VAT recovery rights.
Finally, the tax authorities draw the consequences of the Skandia case on salaries tax (“taxe sur les salaires”). They recall that, as a rule, sums not corresponding to turnover or revenue are not to be taken into account in the calculation of the salaries tax liability ratio: this is the case, in particular, for the provision of internal services within a single legal entity. This is not the case when, by way of derogation, these internal services fall within the scope of VAT: transactions between different States involving an entity that is a member of a VAT group.