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V1886-22 9 August 2022 · SG de Impuestos sobre el Consumo Criterion in force
IVA · establecimiento permanente

Operations between head office and branch not VAT subject if branch does not assume economic risk

A UK company asks whether inventory movements between its head office and its Spain branch are VAT liable. The DGT responds that since the branch is not an independent entity assuming economic risk, the transactions between the two are internal flows exempt from VAT.

The question raised

Whether the operations between the head office and the branch are subject to Value Added Tax.

The DGT's ruling

When a branch does not assume the economic risk of its activity, but rather this risk is assumed by the parent company, the branch is not a separate taxable person from its parent company for VAT purposes. In this case, the supplies between both constitute internal flows not subject to tax, as there is no legal relationship involving the exchange of reciprocal supplies. However, the receipt of goods from other Member States is assimilated to an intra-Community acquisition of goods, and the branch must act as the taxable person.

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