- Spanish tax authorities consider local branches as separate taxable persons for VAT if they are sufficiently independent, even outside a VAT group.
- This interpretation reverses the logic of the FCE Bank judgment and is significant for companies with limited input VAT recovery rights.
- The Spanish Tax Authorities argue that internal flows between a head office and its foreign branches may be subject to VAT if the branch operates independently.
- This approach is based on a broad reading of the CJEU FCE Bank judgment and applies even when branches are not part of VAT groupings.
- Independence is assessed using financial statements, transfer pricing documentation, capital assigned to the branch, and operational autonomy indicators.
- Initially focused on financial and insurance sectors, this approach could extend to other industries, though its financial impact may be limited for businesses with full VAT deduction rights.
- There is no specific legislation or official guidance confirming a branch as a separate VAT taxpayer, and this interpretation is unique to the STA within the EU.
- The Spanish Central Administrative Court has upheld this interpretation, making it binding for the administration despite potential challenges in higher courts.
- The STA’s position may misinterpret EU law and contradict EU institutions, potentially violating principles like freedom of establishment.
- The issue may reach the CJEU, influencing VAT treatment of flows across the EU, with further developments expected from Spanish courts.
- The STA’s position is based on an unusual interpretation of the FCE Bank judgment, arguing that flows may be taxable when the branch operates independently and bears economic risk.
Source: alvarezandmarsal.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
