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July 2016

EY TAX Alert
Luxembourg

CJEU decision on
VAT recovery of
branch network
support costs

The ESET case (C-393/15) focuses on businesss ability to recover VAT on global and
branch support costs. This is an important topic, particularly for companies which
operate via a complex branch network.

Background CJEU decision

ESET, an entity established in Slovakia, Interestingly, the CJEU released its decision
(ESET Slovakia) received services from its via an order rather than judgment. Orders
Polish branch (ESET Poland). ESET Poland are typically only used where the answer is
provided software services which were deemed to be straightforward.
incorporated into products which were
The CJEU held that a taxable person located
marketed and sold by ESET Slovakia. ESET
in Member State A (e.g., Poland) which
Poland also made a number of occasional
makes supplies in another (e.g., Slovakia)
supplies in Poland which carried a right to
should be entitled to recover VAT on related
recover VAT on related costs.
costs in Member State A. This right exists
ESET Poland sought to recover local VAT it even though those costs only contribute
incurred in providing its branch-to-branch to supplies made in a different Member
supplies, recovering VAT in full on the State. The CJEU also confirmed that this
basis that ESET Slovakia made only taxable right exists where those supplies, if carried
supplies. The Polish Tax Authorities rejected out locally, would have given rise to VAT
ESET Polands claim on the basis that its recovery.
intra-entity flows were disregarded for VAT
In its (limited) commentary, the CJEU
purposes. Given the uncertainty on the issue,
confirmed that the Principal VAT Directive
questions were referred to the Court of
takes a fairly broad approach to the concept
Justice of the European Union (CJEU).
of economic activity and does not restrict
its scope on the basis of the activitys place
of performance.
Understanding the impact of the What happens next? EY | Assurance | Tax | Transactions | Advisory

decision About EY
Where a business has any trapped input
EY is a global leader in assurance, tax,
Whilst the CJEU may consider the matter tax in jurisdictions where recovery is transaction and advisory services. The insights
straightforward, there is no standard EU currently denied or where credit has not and quality services we deliver help build
practice around branch and global support yet been taken, we suggest revisiting the trust and confidence in the capital markets
cost recovery. For example, the French amounts at stake to determine whether and in economies the world over. We develop
a claim is possible. Similarly, where the outstanding leaders who team to deliver on
Courts decision in the Morgan Stanley case our promises to all of our stakeholders. In so
treated related input tax as being wholly business already enjoys a level of recovery
doing, we play a critical role in building a better
irrecoverable whereas it is common for UK on support costs either at its own local VAT working world for our people, for our clients
and German companies to recover costs on a deduction right or via a look-through VAT and for our communities.
look through basis. deduction right we would suggest assessing
the impact of ESET to determine whether the EY refers to the global organization, and may
Whilst ESET does support the right to recover current approach is impacted and/or whether refer to one or more, of the member firms of
VAT on branch-to-branch services, it does Ernst & Young Global Limited, each of which is
a right to recover additional amounts exists.
a separate legal entity. Ernst & Young Global
not discuss the level of recovery permitted.
From a Luxembourg perspective, it will also Limited, a UK company limited by guarantee,
Although its wording suggests a preference does not provide services to clients. For more
for a look through approach which would be interesting to see how the Luxembourg
information about our organization, please
potentially divide the branchs activity into VAT Authorities will interpret and apply the visit ey.com.
support services and supplies made in its decision. Although these new rules had a
own name, it does not elaborate on this. few iterations, their genesis was the CJEUs 2016 Ernst & Young S.A.
decision in Le Credit Lyonnais (C-388/11) All Rights Reserved.
It is, therefore, not clear whether the which focused on the inclusion of the branch
recovery is based on: turnover for the head office calculation This material has been prepared for general
informational purposes only and is not intended to be
A look through to the head offices VAT of the deduction right. Businesses in the
relied upon as accounting, tax or other professional
deduction right process of implementing a new partial advice. Please refer to your advisors for specific advice.
exemption method may also wish to consider
The general VAT recovery right of the whether and how this case impacts their own ey.com/luxembourg
branch where it makes supplies in its own situations.
name
A geographical simulation is required: For further information, please contact
had the branch been in the head office one of the following or your usual EY
Member State, it would have had or not contact.
a VAT deduction right according to the
head offices Member State VAT rules Yannick Zeippen
(approach taken by the CJCE in the Partner
C-582/08 case) +352 42 124 7362
yannick.zeippen@lu.ey.com

Jacques Verschaffel
Directeur Associ
+352 42 124 7219
jacques.verschaffel@lu.ey.com

Olivier Lambert
Directeur Associ
+352 42 124 7361
olivier.lambert@lu.ey.com