Executive summary

In Ruling 216/2025, issued on 20 August 2025, the Italian Revenue Agency has affirmed that services provided between two fixed establishments (FEs) of the same company (Head Office) participating in a European Union (EU) Value-Added Tax (VAT) Group are subject to VAT. Because the Head Office is a member of a VAT Group in an EU country, the unity between the two FEs is broken for VAT purposes. As a result, services that the United Kingdom (UK) FE provides for the Italian FE are subject to VAT in Italy.

Detailed discussion

ALFAIT and ALFAUK are respectively the Italian and the UK fixed establishments (FEs) of ALFA, a foreign legal entity that has joined a VAT Group in an EU Member state.

ALFAUK is a member of a UK VAT Group and provides information technology (IT) and back-office services to ALFAIT under an Intragroup Services Agreement. ALFAIT has no input VAT recovery because it has opted for the special exemption regime under Article 36-bis of DPR 633/1972 and therefore cannot deduct the VAT applied on reverse-charged transactions.

Taxpayer's position

The taxpayer argued that the services exchanged between ALFAIT and ALFAUK should be disregarded for VAT purposes based on the European Court of Justice's (ECJ's) FCE Bank ruling (C-210/04), because both FEs are part of the same legal entity and thus form a single taxable person, and the Head Office's participation in an EU VAT Group should not affect the VAT treatment of services between its foreign branches.

Revenue Agency's analysis

The Revenue Agency confirmed that, following Brexit, UK VAT Groups are not recognized as VAT groups under EU VAT law and therefore the membership of ALFAUK in a UK VAT group does not make the UK FE a separate taxable person from the Italian FE.

However, the Head Office's participation in an EU VAT Group is decisive, the Agency has asserted. Based on the ECJ's rulings in Skandia (C-7/13) and a later case, the participation in an EU VAT Group breaks the VAT unity between the main establishment and its branches. As a consequence of the Head Office's participation in an EU VAT group, the branches became separate taxable persons for VAT purposes not only from the Head Office but also from each other.

Conclusion

The Italian Revenue Agency concludes that due to the Head Office's membership in an EU VAT Group, the unity between the two FEs is broken and the FCE Bank ruling cannot be applied. Consequently, the Skandia and case law principles are applicable as transposed into Italian law and make the services that the UK FE provided to the Italian FE relevant for VAT purposes and subject to VAT in Italy.

Implications for multinational groups

Multinational entities with branches in different countries must carefully assess the impact of EU VAT Group membership on intra-entity transactions. EU VAT Group participation by the main establishment can trigger VAT obligations for services exchanged between its branches, even if those branches do not participate in an EU VAT Group.