• Service: Tax, Global Indirect Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 9/24/2013

Luxembourg - Principal establishments and foreign branch VAT deductibility 

September 24: A judgment of the Court of Justice for the European Union (CJEU)concluding that a company having its principal establishment in an EU Member State may not take into account, for purposes of calculating the deductible proportion of value added tax (VAT), the turnover of its foreign branchesmay have implications for VAT in Luxembourg. Le Crédit Lyonnais v. Ministre du Budget, C-388/11 (12 September 2013)

Read TaxNewsFlash-Europe: France - CJEU addresses deductible proportion of foreign branch-related VAT

While the CJEU’s decision was based on the case of a bank, its effect is not limited to banks; the decision affects all principal establishments that generate turnover through their foreign branches.

Due to the straightforward nature of the CJEU’s decision, it is likely that the Luxembourg VAT authorities could view this case as an opportunity to increase their focus on the calculation of the pro rata of deductible input VAT by taxpayers whose principal establishment is in Luxembourg and, possibly, to reassess VAT for principal establishments.

KPMG observation

In the light of the CJEU judgment, taxpayers having principal establishments in Luxembourg will want to review the calculation of their VAT recovery so that their methods are in line with both the CJEU’s judgment and the Luxembourg VAT authorities’ guidance (Circular n° 765). In case of divergences, principal establishments may want to consider making appropriate changes, if necessary, without delay.

Read a September 2013 report [PDF 150 KB] prepared by the KPMG member firm in Luxembourg: Crédit Lyonnais (C-388/11) - Principal establishments not entitled to include turnover of foreign branches into calculation of their local VAT recovery ratio

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