Transactions between a branch office and its parent company are not subject to VAT

05.2013

One of our clients enquired recently whether the management fees that a German parent company pays to its Spanish branch are subject to VAT. This was in fact examined by the ECJ in its ruling of 23 March 2006 (C-210/04). The conclusion was very clear: under no circumstance can service provisions between a branch and a parent company be subject to VAT, as these are deemed to take place between parts of the same company (Single Entity Approach).

Let us remember that a branch is not a separate legal entity from the company of which it forms part, as it does not have its own share capital and its balance sheet is consolidated into that of the parent company. The fact that the branch has fiscal autonomy in regards to direct tax, as provided for in Art. 7.2. of the OECD Model Tax Convention, is not relevant from the perspective of VAT.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++