Edited by Alessia Zanatto, Maria Chiara Turio Bohm, Andrea Carbone
By means of Ruling no. 216/2025, the Italian tax authorities addressed the VAT treatment applicable to supplies carried out between the fixed establishments of the same entity participating in a VAT Group in an EU country.
Specifically, the case concerns a company established in an EU country, Alfa (head office), and its fixed establishments Alfa 1, Italian, and Alfa 2, UK.
The Italian branch is not part of any VAT Group in Italy, while the UK branch is part of a VAT Group in the United Kingdom.
Alfa 1 receives from Alfa 2 information technology (“IT”) and back-office services, i.e. services including the provision of certain IT applications together with other management support activities.
Alfa 1 has exercised the option for exemption from obligations related to VAT exempt supplies, pursuant to art. 36-bis Presidential Decree no. 633/1972, and is, therefore, not entitled to deduct input VAT on self-invoices, issued in accordance with art. 17, paragraph 2, Presidential Decree no. 633/1972, in relation to the services provided by Alfa 2.
The head office participates to a VAT Group in the EU Member State of establishment.
Alfa 1 asked the Italian tax authorities for clarification on the VAT treatment applicable to the services received from Alfa 2 and, specifically, whether art. 70-quinquies, paragraph 4-quinquies, Presidential Decree no. 633/1972 applies to the case at hand.
On this point, Alfa 1 claims that the principles expressed in the previous Ruling no. 314/2023[1] should apply. With Ruling no. 314/2023, the Italian tax authorities, by referring to the judgment of the Court of Justice of the European Union (“CJEU”) FCE Bank (case C-210/04), clarified that the services carried out between two fixed establishments of the same German legal entity, one established in Italy and the other established in the United Kingdom, the latter being part of a VAT Group established in the United Kingdom, are outside the scope of VAT.
In fact, the VAT Group established in a third country (such as the United Kingdom) is not comparable to a VAT Group established in an EU Member State, as its participating entities cannot be treated as a single taxable person for VAT purposes within the European Union.
According to Alfa 1, this conclusion (i.e. irrelevance for VAT purposes of the services provided by the UK fixed establishment to the Italian one) would not be affected by the fact that, in the present case, the head office is part of a VAT Group in the EU Member State of establishment, since, to determine the applicable VAT treatment, only the position of the entities involved in the single supply (in this case, only the Italian branch and the UK branch and not the head office) should be taken into account, in accordance to the principle of territorial limitation of the VAT Group regime. Indeed, according to Article 11 of Directive 2006/112/EC, the VAT Group is only effective in one Member State.
The Italian tax authorities, while confirming the principles expressed in the aforementioned Ruling no. 314/2023, concluded that the supplies provided by Alfa 2 to Alfa 1 are relevant for VAT purposes, as the head office being part of a VAT Group in its own EU Member State would affect the subjective identity with its fixed establishments which should, therefore, be considered separate taxable persons from the head office and the VAT Group itself.
To support these conclusions, the Italian tax authorities recalled the principles expressed by the CJEU in Skandia judgment (case C-7/13) and, above all, in Danske Bank judgment (case C-812/19), whereby the CJEU “clarified that the existence of a VAT group in a Member State must, where appropriate, be taken into account for the purposes of taxation in other Member States, in particular when the latter assess the tax obligations of a branch established in their territory (C-812/19, paragraph 33)”, as well as the Working Paper of the VAT Committee no. 1027 of October 25, 2021[2].
It should be noted that both the CJEU judgements and the Working Paper mentioned by the Italian tax authorities refer to cases involving bilateral transactions between the head office and the fixed establishment or between two fixed establishments, where at least one of the two entities involved (supplier or recipient) is part of a VAT Group and do not address the possible effects on supplies between two fixed establishments resulting from the head office being part of a VAT Group.
Moreover, the Italian tax authorities seem not to have considered additional VAT Committee guidelines such as Working Paper no. 933 of November 8, 2017, and Working Paper no. 1025 of October 25, 2021.
The approach taken by the VAT Committee in the Working Papers mentioned above is very clear: the analysis regarding the effects of the VAT Group must be carried out with reference to the entities involved in the supply only.
In fact, in Working Paper no. 1025, the VAT Committee has clearly stated that the principles expressed by the CJEU in Skandia and Danske Bank judgements applies to the supplies between two fixed establishments when one of the two entities involved is part of an EU VAT Group.
Furthermore, according to the aforementioned guidelines, an approach whereby the VAT Group is seen to absorb the foreign head office (case addressed by the Ruling at hand) or the foreign fixed establishment (case not addressed by the Ruling at hand) would not be consistent with the findings of CJEU that the VAT Group is a separate taxable person and with the territorial limitation set forth in Article 11 of Directive 2006/112/EC.
Indeed, claiming that the circumstance that the head office is part of a VAT Group established in an EU country may result in its Italian and UK branch being considered as separate taxable persons for VAT purposes means, de facto, attributing to that VAT Group relevance in a different Member State (namely, Italy), making the relevance for VAT purposes of supplies between two branches located in two different States dependent on circumstance that is entirely exogenous (and irrelevant with respect to the rationale of the Skandia and Danske Bank judgments) and that occurs in a third State.
From this perspective, it is difficult to understand why, in the case at hand, if the head office ceased to be part of the VAT Group in its State, the supplies between the two fixed establishments would no longer be relevant, whereas if the head office continued to be part of the VAT Group, the same supplies would continue to be subject to VAT.
[1] In this respect, please refer to our newsletter.
[2] In this document, the VAT Committee analyzed the interactions between the VAT Group and the provisions concerning e-commerce and the OSS schemes.
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