EU judgment on internal management services and VAT

The case involved a Swedish parent company of a real estate management group, that provided business management services, financial services, real estate management services, investment services, IT and staff administration services to its subsidiaries, on which VAT was charged.

The consideration was determined using a 'cost-plus' method, with the parent company applying an allocation key whereby specific percentages of costs were attributed to services provided to subsidiaries, whilst excluding 'shareholder' costs such as annual accounts preparation, auditing, and capital raising costs.

The Swedish Tax Agency took the view that the services had been charged at below open market value and determined the taxable amount as the total costs borne by the parent company.

The ECJ referred to previous case law, stating that where a transaction comprises multiple elements, it must be determined whether it constitutes several distinct supplies or one single supply. A single supply exists where elements are so closely linked together, they form an objectively single, indivisible economic supply. The ECJ found that the services provided by the parent company could not be concluded as a matter of principle to be so closely linked together as to form a single, indivisible economic supply.

The ECJ noted that the services provided, even when provided together, each appeared to have their own character and to be identifiable. The fact that an overall price was paid could not be decisive for the intra-group supplies, as this would allow groups to influence VAT classification through their remuneration arrangements. 

The ECJ ruled that the VAT Directive must be interpreted as precluding tax authorities from automatically regarding services provided by a parent company to subsidiaries in the context of active management as a single supply that prevents open market value determination using the comparison method.

The ruling provides important clarity for multinational groups on VAT treatment of intra-group services, most importantly that the tax authorities cannot automatically treat all parent company management services as a single, non-comparable supply.