• Service: Tax, Global Indirect Tax, International Tax
  • Type: Regulatory update
  • Date: 5/12/2014

Sweden - VAT on transactions between foreign head office, PE 

May 12:  The Advocate General of the Court of Justice of the European Union (CJEU) issued an opinion concluding that transactions between a foreign head office and a “fixed establishment”—e.g., permanent establishment or PE—that is part of a value added tax (VAT) group are outside the scope of the VAT rules. Skandia America Corp. v. Skatteverket, C-7/13 (8 May 2014)

From the opinion, it appears that the Advocate General considers this finding to be an undesirable because it means that transactions between the head office and the fixed establishment, as well as transactions within the VAT group, are not subject to VAT.

The AG suggests a number of alternatives, under which the transactions would be subject to VAT.


A U.S. company has a fixed establishment in Sweden that is part of a Swedish VAT group.

In 2007 and 2008, the U.S. head office re-charged (with a mark-up) externally acquired IT services to the Swedish fixed establishment. The Swedish fixed establishment modified the IT and, in turn, re-charged the IT costs with a mark-up to the other group companies (both within and outside the VAT group).

A Swedish court requested a preliminary ruling from the CJEU as to whether VAT is payable on the external services purchased by the head office that were allocated to the fixed establishment, given that the fixed establishment is part of a VAT group and if this were the case, whether the VAT reverse-charge mechanism applied.

Advocate General’s opinion

The Advocate General found that when a head office and a fixed establishment are part of one legal entity, together they form one single taxpayer. Thus, both the fixed establishment and the head office are part of the VAT group, and as such, the basis assumption is that no VAT is payable on the costs re-charged to the Swedish fixed establishment.

The Advocate General concluded that the fact that the fixed establishment and the U.S. head office are both are part of the VAT group means not only that (1) transactions between the head office and the fixed establishment, but also (2) transactions between the fixed establishment and the other companies in the VAT group are not subject to VAT.

Read a May 2014 report prepared by the KPMG member firm in the Netherlands: Advocate General at CJEU issues Opinion on transactions between a head office and a fixed establishment that is part of a VAT group

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