Can Spanish Taxpayers Still Rely on the FCE Bank Principle?

• The principle of unity of the taxable person states that services between a branch and its head office are outside the scope of VAT since the branch is not independent of its head office.
• However, recent VAT grouping judgments from the Court of Justice of the European Union (CJEU) seem to conclude that VAT grouping snaps up the link between a branch and its head office, resulting in the two establishments being treated as two separate persons for VAT purposes.
• The Spanish Tax Authorities (STA) have taken a tougher stand on the orthodox principle of unity of the taxable person, considering that the Spanish branches of EU banks and insurance companies are in fact ‘independent’ and, therefore, any services provided by an overseas head office and received by a Spanish branch fall within the scope of VAT.
• This aggressive interpretation by the STA has the potential of having a material impact on businesses’ bottom line and is likely to result in years of litigation, probably up to the CJEU, creating unwelcome legal risks for current branch structures.

Source Kluwertaxblog

See also in our library of ECJ Cases

• Taxable person (Art. 9)
  • Transactions between head offices and branches
• VAT Grouping (Art. 11)
  • Focus on Supplies of services between Head Office and its Branch, whereby one of the parties is part of a VAT Group
• C-210/04 (FCE Bank) – A fixed establishment is not a legal entity distinct from the business itself

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