ECJ JUDGEMENT in the Skandia America Corporation VAT Case (C7/13)

The European Court of Justice held that the supply of services by a non-EU Head Office to a branch situated in the E.U. is now liable to VAT where that branch is part of a VAT group.


VAT grouping allows EU member states to treat two or more companies as a single entity for VAT purposes which means transactions between members of a VAT group are normally ignored for VAT purposes.


However, the ruling on this dispute between Skandia America Corporation and the Swedish Tax Authorities means that services previously deemed to be VAT exempt will now be subject to VAT rates of between 15% and 27%.


This decision is of particular relevance to the financial services industry since the products and services they sell (e.g. mortgages and insurance) are largely exempt from VAT.  The ruling means they will now be unable to recover input VAT refunds within the EU resulting in additional costs for banks and/or insurers who have outsourced IT and other services.


The Background: 

  • The non-EU head office purchased IT services from a third party and made those services available to its branch which was situated in an EU member state i.e. Sweden.


  • The US head office charged the cost of those services to its Swedish branch with a 5% mark up.


  • The Swedish branch then provided those IT services to users both within and outside the VAT group.


  • The costs charged by the US Head Office to the Swedish Fixed Establishment were disregarded for VAT purposes.


  • The Swedish Tax Authorities didn’t hold this view.  Instead they believed the supplies between the US head office and the Swedish branch were liable to Swedish VAT.


  • The Swedish Tax Authorities registered the US Head Office as a non established taxable person and raised an assessment for output tax on the supply of services to its Swedish branch.


  • Skandia America Corporation appealed this assessment.


  • The Swedish Tax Authorities defended its position stating that the branch was part of a VAT group and therefore a separate taxable person for VAT purposes.


  • Skandia America Corporation relied on the FCE Bank Principles Case stating that a head office and its branch are part of the same legal entity and therefore no VAT can be due on the recharge.


  • The Advocate General concluded that a branch could not be considered a VAT Group member independent of its head office because a branch is not deemed to be a taxable person distinct from the head office.


  • On 17th September 2014, however, the ECJ held that VAT must be charged on services provided by companies by their overseas offices.


The Consequences: 

The consequences of this ruling will be substantially higher tax bills for financial services companies especially in the U.K. which is considered the “Global Financial Services Centre.”


Special Assignee Relief Programme

 The Special Assignee Relief Programme or S.A.R.P. applies to secondments in Ireland in 2012, 2013 and 2014 and lasts for five calendar years for each employee.


How does an employee qualify for this relief?

 To qualify, the employee:

  • Must work full time with the seconding employer (i.e. the U.S. employer) before the secondment for at least twelve months prior to moving to Ireland.
  • Must not be Irish resident in the five years prior to the secondment.
  • Must be resident in Ireland in the year of the claim.
  • Must perform substantially all their duties of employment in Ireland.
  • Must earn more than €75,000 per annum excluding benefits.


What Incentive is available?

 The incentive available is a reduction of taxable income in Ireland by 30% of the “specified amount.”

 The “specified amount” is calculated as an amount of 30% of the difference between €75,000 (being the lower limit) and the lower of either:

  1. €500,000 (being the upper limit) or
  2. All the income from the employment including Benefit-in-Kind, bonuses, share based remuneration, etc.


What are the actual savings to the U.S. Secondee? 

  • Typically there will be a saving at the top Irish tax rate of 41%
  • This is usually operated through the payroll system in Ireland so that PAYE is not operated on the incentive amount.


 Are there any other incentives?

 Qualifying employees can also receive the following payments tax free:

  1. The cost of one return trip home for the family per year and
  2. Reimbursement of school fees up to €5,000 for each child attending an Irish school.


What about restrictions?

 The S.A.R.P. Relief does not apply to:

  1. New employees of the seconding employer
  2. Income that remains liable for U.S. tax and where a foreign tax credit is available.



  • This relief doesn’t just apply to U.S. employers, it applies to employers who have been resident in a country with which Ireland has a Double Taxation Agreement or an Agreement relating to the Exchange of Taxation Information.
  • This relief will also apply to employees who are deemed to be Irish nationals.


Split Year Residence Relief

 This relief applies to an individual who has not been Irish resident in the tax year prior to the date of arrival and who arrives in Ireland with the intention that he/she will be resident her in the following year.  In such circumstances the individual will be treated as Irish resident only from the date of arrival.


Why is this important?

 This is important because it means the individual won’t be liable to Irish income tax in respect of any foreign income arising to him/her prior to the date of arrival.


Does it apply to all income?

 No.  It only applies to employment income except for Directors’ salaries.

 It does not affect any potential tax liability in respect of income from other sources.



Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.