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• Spanish tax authorities consider local branches as separate taxable persons for VAT if they are sufficiently independent, even outside a VAT group.
• This interpretation reverses the logic of the FCE Bank judgment and is significant for companies with limited input VAT recovery rights.
• The Spanish Tax Authorities argue that internal flows between a head office and its foreign branches may be subject to VAT if the branch operates independently.
• This approach is based on a broad reading of the CJEU FCE Bank judgment and applies even when branches are not part of VAT groupings.
• Independence is assessed using financial statements, transfer pricing documentation, capital assigned to the branch, and operational autonomy indicators.
• Initially focused on financial and insurance sectors, this approach could extend to other industries, though its financial impact may be limited for businesses with full VAT deduction rights.
• There is no specific legislation or official guidance confirming a branch as a separate VAT taxpayer, and this interpretation is unique to the STA within the EU.
• The Spanish Central Administrative Court has upheld this interpretation, making it binding for the administration despite potential challenges in higher courts.
• The STA’s position may misinterpret EU law and contradict EU institutions, potentially violating principles like freedom of establishment.
• The issue may reach the CJEU, influencing VAT treatment of flows across the EU, with further developments expected from Spanish courts.
• The STA’s position is based on an unusual interpretation of the FCE Bank judgment, arguing that flows may be taxable when the branch operates independently and bears economic risk.

Source:

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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