With today’s published response, the Internal Revenue Service has returned to comment on the relevance for VAT purposes of transactions between the Italian permanent establishment of a German entity and the other permanent establishment of the same entity located in the United Kingdom and there participating in a VAT Group, overcoming previously published guidance.
On this point, the Administration first made a reconnaissance of the principles applicable to the case at hand, recalling that:
– generally, transactions between the parent company and the permanent establishment are irrelevant for VAT purposes due to their subjective identity, as established by the ECJ in 𝘍𝘊𝘌 𝘉𝘢𝘯𝘬 (Case C-210/04);
– in the event that the parent company or the permanent establishment belongs to a VAT group in their respective member state of establishment, transactions between the two entities-which would generally be excluded from the scope of the tax-are then relevant for VAT purposes, as established by the ECJ in the ruling 𝘚𝘬𝘢𝘯𝘥𝘪𝘢 𝘈𝘮𝘦𝘳𝘪𝘤𝘢 𝘊𝘰𝘳𝘱. (Case C-7/13).
Having said that, the Agency also retraced the positions expressed by the European Commission in the VAT Committee (see 𝘞𝘰𝘳𝘬𝘪𝘯𝘨 𝘗𝘢𝘱𝘦𝘳 nos. 1025 and 1027 of 2021), regarding the applicability of these principles to taxable persons established outside the EU, as well as in the VAT Committee’s 2021 guidelines, according to which taxable persons established outside the EU who belong to a VAT group in that country cannot be treated as a single (collective) taxable person for VAT purposes.
As a result, it was concluded that supplies of services carried out between two branch offices of the same (German) entity, one of which is established in the United Kingdom and belongs to a VAT group there, are excluded from the scope of VAT (the principles dictated in the judgment again finding application 𝘍𝘊𝘌 𝘉𝘢𝘯𝘬), since it is not possible to equate a VAT group established in a non-EU country (as is the UK post-Brexit) with one established in an EU member state.
In this regard, the Tax Administration points out that the guidance provided in response no. 756 of November 3, 2021.