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EU rules foreign bank branch liable to VAT – Dansk Bank

On the 11 March 2021, the ECJ ruled Danske Bank A/S, Danmark, Sverige Filial v. Sweden. The Dansk ECJ ruling confirmed that a Swedish branch of a Danish Bank, Danske, was a separate VAT body. This was because the Danish headquarters had opted to form a Danish VAT group. This excludes foreign offices, so meaning the Swedish branch is an independent taxable entity in Sweden.  This is despite the economic reality of the Swedish entity being wholly reliant on the Danish office, and only being in existence to support its activities as a controlled party.  The Danish entity must therefore charge VAT to its Swedish branch for the use of shared computer platform. Under the EU VAT exemption rules for financial services, this VAT is unrecoverable for the Swedish entity – so a loss.

This case underlines the need for the EU to accelerate its review of the VAT exemption for Financial Services.  Banks and insurers are losing large sums because they have no right to deduct VAT charged to them outside of VAT groups, as will now happen following this latest ruling.

The exemption is a major distortion of the market, and places EU-based banks on an unfair footing with global competitors.  The uncertainty, and clogged-up legal cases in the EU system, is not helpful in building an international  industry.  The UK’s aim to reform its financial services exemption post-Brexit will heighten this pressure for the EU.  There are likely to be initial EU proposals in 2022 with the concerns that derailed the last attempt to impose VAT on financial services now removed with the UK gone.

Question referred to ECJ

Does a Swedish branch of a bank established in another Member State constitute an independent taxable person where the principal establishment supplies services to the branch and imputes the costs thereof to the branch, if the principal establishment is part of a VAT group in the other Member State, while the Swedish branch is not a member of any Swedish VAT group?

EU VAT reforms

Reform (click for details) Update
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2035 Harmonisation of EU e-invoicing and domestic regimes Jan 2035
2030 Digital Reporting Requirements and e-invoicing harmonisation July 2030
Structured e-invoices supercede paper invoices July 2030
EC Sales lists replaced by Digital Reporting Requirements July 2030
2028 EU Customs reforms Published May 2023
€150 import consignment threshold removed Published May 2023
2027 Single VAT Registration in the EU - extension of OSS July 2027
Call-off stock VAT simplification ends July 2027
Harmonisation of B2B Reverse Charge rules July 2027
Proposal for VAT treatment of the platform economy July 2027
2026 DAC8 harmonised crypto asset reporting Approved May 2023
2025 VAT registration thresholds equivalence foreign businesses 1 Jan 2025
Virtual events VAT rule changes 1 Jan 2025
Financial Services VAT exemption reform proposals Consultation complete; proposal awaited
Tour operator margin scheme VAT reforms EC undertaking fresh review
2024 Payment providers' seller transaction reporting and bookkeeping obligations In effect since 1 Jan 2024
2023 DAC 7 - marketplace reporting harmonisation In effect since 1 Jan 2024
2022 IOSS reforms to prevent double taxation On hold
EU reduced VAT rate freedoms Entered into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option


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