Different tax numbers do not make a company and its branch two separate taxable entities

Council Directive 2006/112/EC and the principle of neutrality preclude the tax authorities of a Member State from regarding a company with headquarters in another Member State and its branch in the Member State of the tax authority as constituting two separate taxable entities on the ground that each of those entities has a tax identification number, and, for that reason, from refusing that branch the right to deduct value added tax (“VAT”) on the debit notes issued by an economic interest group of which that company, and not its branch, is a member.

The aforementioned conclusion was reached by the Court of Justice of the European Union on 7 August 2018 as a response to the request for preliminary ruling by the Tax Arbitration Tribunal of Portugal.

The request for preliminary ruling was initiated as part of a court dispute which arose during a tax audit of TGE Sucursal em Portugal covering the accounting years 2009 to 2011. The Tax and Customs Authority of Portugal drew up a report stating that the branch TGE Sucursal em Portugal and its principal – TGE Bonn, are two different entities, each of which has a different tax identification number. According to the Tax and Customs Authority, as TGE Sucursal em Portugal was not a constituent member of a respective European Economic Group, it could not attribute its costs to it and consequently TGE Sucursal em Portugal could not deduct the VAT relating to those costs.

It follows that, in a situation such as that at issue in the main proceedings, the tax authority of a Member State cannot refuse the deduction of input VAT to a taxable person on the sole ground that that taxable person used a tax identification number as a non-resident entity without a fixed establishment at the time of the formation of an EIG and used the tax identification number of its branch located in that State for the re-invoicing of the costs of that group.

On the basis of CJEU’s ruling, a case-by-case evaluation is necessary in order to establish whether a branch situated in another Member State carries out any economic activity ‘independently’. If not, the branch and the principal shall not be regarded as separate taxable persons.