ECJ confirms companies may not include foreign EU branch turnover in VAT deductions

Tue 17th Sep 2013

The European Court of Justice ruled last week that EU companies may not include the turnover of their foreign EU branches in their calculations of VAT deductions.  This may undermine previous progress in treating multi-branch banks in different EU countries as a single taxable entity.

The case, Société le Crédit Lyonnais v. Ministre du budget, des comptes publics et de la réforme de l’Etat, concerned the French office of Crédit Lyonnais.  In a tax audit of its books, it was found to have added to its French VAT calculation the interest income from loans to foreign branches in the rest of the EU.  This income was applied in the calculation of the deductible input VAT based on the EU VAT Directive Article 173.

ECJ says companies cannot include branch VAT

The French VAT authorities challenged this interpretation in 2011.  Credit Lyonnais believed the turnover of foreign branches and the interest income from them to the French HQ should be included.

The ruling was referred to the European Court of Justice, which rules on EU laws, and is the final court of appeal.  It agreed with the French VAT office on 12 September 2013.

In previous VAT related cases, the ECJ had tried to view multi-branch banks operating across EU borders as a single taxable entity.  This reflects the reality of modern banking where activites, financing etc are shared.