The Revenue Commissioners have released new guidance on the territorial scope of VAT groups. Can you review the most relevant points for taxpayers of new guidance and any implications for taxpayers?
Contributor: Emma Galvin, VAT Director, BDO
Prior to its release, the Revenue took a broad interpretation of the Irish VAT Grouping rules for head offices and branches, and as outlined in published non-statutory Revenue guidance viewed the whole entity as being a member of the Irish VAT Group i.e., including any overseas head office or branches (if applicable), and not just the Irish establishment, commonly referred to as the “whole entity” approach.
The consequence of this interpretation was that any transactions between the overseas establishment/s and members of the Irish VAT Group were not considered supplies for VAT purposes (subject to the normal VAT Group exceptions).
As a result of continuing to apply the “whole entity” approach, the Revenue had not implemented the Skandia (C 7/13) and Danske Bank (C-812/19) principles.
However, effective immediately for any VAT Groups formed from 19 November 2025, and effective from 1 January 2027 for any existing VAT Groups as of 19 November 2025, Irish VAT Grouping will only be available to Irish establishments.
This means that non-Irish head offices or branches may not be members of an Irish VAT Group and therefore supplies between such non-Irish establishments and an Irish VAT Group cannot be disregarded and should be within the scope of VAT (subject to the normal VAT rules).
This represents a significant change in the VAT treatment applicable to the receipt of services by Irish VAT Groups from the VAT Group members’ non-Irish establishments – see some examples set out below.
- Example 1 - an Irish company and an Irish branch of a French company form an Irish VAT Group. The French head office supplies services to the Irish VAT Group. The supply of the services may now fall within the scope of VAT, and the VAT Group may be obliged to account for VAT on the reverse charge basis (subject to the services being taxable services).
- Example 2 - a Luxembourg company is a member of a VAT Group in Luxembourg. The Luxembourg company has a branch in Ireland. The Luxembourg head office supplies services to the Irish branch. The supply of the services may now fall within the scope of VAT, and the Irish branch may be obliged to account for VAT on the reverse charge basis (subject to the services being taxable services).
It should be highlighted however that there should be no change to the VAT treatment applicable to supplies between head offices and branches where neither the head office nor the relevant branch is a member of VAT Groups in Ireland or in another EU Member State.
Businesses that have its head office or a branch in Ireland and where the business’s head office and/or branches are members of a VAT Group in Ireland or in another EU Member State need to immediately assess the impact of this change, in particular, those with restricted VAT recovery entitlement e.g., funds, banks, insurance companies etc., as this change could have a real bottom line cost for such businesses.
There may also be scope for VAT recovery rates potentially increasing because of transactions that were previously disregarded for VAT purposes now coming within the scope of VAT.
Content published in Finance Dublin Irish Tax Monitor.