ECJ ruling to bring million pound VAT costs
A landmark ruling by the European Court of Justice (ECJ) is set to bring a huge VAT bill to banks, insurers and other financial services across Europe.
The ruling means that services supplied between a group’s headquarters and its branches may now be subject to VAT.
The judgement concerned Skandia America Corporation and the Swedish Tax Authority. Other tax authorities across the EU will now consider how they implement the rules.
Stephen Morse, tax partner at PwC, said: "The case significantly expands the VAT net for financial services firms. Banks and insurers are likely to be affected most. It's standard for head office costs to be shared between a group's subsidiaries. Any internal costs between a firm's branches will now face VAT, rather than just the external costs. Many financial services firms will see their VAT bills soar.
"It's surprising the ECJ decided any supply between a firm's headquarters and its branches is liable to VAT, rather than focusing on specific scenarios. We need to see how different countries will interpret the ruling, and until then there will be considerable uncertainty for the financial services sector. Banks and insurers need to consider how they could be affected."
