UK VAT Group Ruling: Key Takeaways for Multinationals with UK Branches
The First-tier Tribunal ( the FTT) published its decision in an interesting case involving Barclays Services Corporation (BSC) and Barclays Execution Services Limited (BESL) on one side and HM Revenue and Customs (HMRC) on the other.
The case refers to a BESL request that BSC join the VAT group represented by the BESL, which HMRC denied. The FTT's decision could significantly affect multinational companies with UK branches.
Fact of the Case and Tribunal Decision
As mentioned, the BESL, as a VAT group representative, submitted a request to HMRC to allow the BSC to join the VAT group. For those unfamiliar with the VAT group's meaning, it is a measure that enables two or more eligible taxable persons to be treated as a single person for VAT purposes.
HMRC denied this request, stating that the BSC, the UK branch of BESL, did not have a fixed UK establishment and that even if it did have one, the request should be denied as a means of “protection of revenue.”
The BESL and BSC jointly appealed against this decision from the HMRC, first before the HMRC Appeals, which confirmed the first instance decision, and then to the FTT.
The FTT also confirmed the decisions made by both instances of HMRC, stating that BSC did not have a fixed establishment in the UK following UK law. For a taxable person to have a fixed establishment, both human and technical resources are needed in the UK to provide services.
Therefore, the FTT concluded that the HMRC correctly denied the request for BSC to join the VAT group.
To avoid any potential issues related to VAT grouping, multinational companies must ensure that they have both human and technical resources in the UK to fulfill requirements concerning fixed establishment. In other words, the UK branch or subsidiary must have all the resources necessary to receive and make supplies.
Conclusion
All multinational companies that want to benefit from the advantages of VAT grouping must closely observe and meet all the requirements stated in UK law. Although this is only the FTT case binding only to the parties involved, and further proceedings might occur, it is noteworthy that this is not the first case with a similar outcome.
Taxable persons should keep track of court rulings related to these matters if they are operating or intend to operate in the UK market.
Source: First-tier Tribunal (Tax Chamber) - Case TC09275, Bloomberg, HMRC - Group and divisional registration (VAT Notice 700/2)
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