Recent decisions from the Court of Justice of the European Union (CJEU) and UK tribunals highlight the ongoing complexity in determining whether intra-group services constitute a single supply, or multiple supplies for VAT purposes. This article explores the implications for businesses making VAT-exempt supplies.
Many VAT disputes with HMRC about (i) whether there is one single service or multiple services and (ii) the nature of the single service if there is only one, revolve around what the average consumer will consider to be the case. Whilst this is relatively straightforward to consider when the services are being supplied to private individuals, it becomes more difficult and open to interpretation where the services are being supplied between businesses, particularly businesses that are associated with each other, e.g. group companies.
On 3 July 2025, the CJEU released its decision in the case of Högkullen AB (C-808/23). In this case, Högkullen AB (Högkullen) provided a wide variety of support (namely business management services, financial services, real estate management services, investment services and IT and staff administration services) to its subsidiaries.
Its subsidiaries were not entitled to reclaim all of the input VAT on their expenditure due to them making VAT-exempt property supplies, whereas Högkullen did reclaim all of the input VAT on its expenditure. So, the Swedish tax authority ruled that Högkullen supplied a single, continuous service to each of its subsidiaries and that that service had been under-valued for VAT purposes. However, all that the CJEU said was that tax authorities cannot automatically presume that group companies are only ever capable of supplying a single, continuous service to each other for VAT purposes, and now that the UK has left the EU, this CJEU decision is not of much use to UK taxpayers in similar situations.
In the UK we have had lots of cases involving supplies of ‘back-office support’ services made by one group company to other group companies that supply VAT-exempt financial services and so cannot reclaim all of the input VAT incurred on their expenditure including VAT on those intra-group ‘back-office support’ services, the most recent of which was the 16 June 2025 Upper Tribunal (‘UT’) decision in the case of JPMorgan Chase Bank NA (‘JPMorgan’).
In this case, the UT upheld the First-tier Tribunal’s 29 September 2023 decision (which agreed with HMRC’s view) that one of JPMorgan’s group companies supplied a single, continuous service to another group company comprised of multiple elements because those elements were:
(i) supplied under a single contract
(ii) so heavily interlinked that it would have been artificial to treat them as independent services.
If there is a single service supplied between group companies and one element of that service would, if it were supplied independently be VAT-exempt, is it possible to treat an element of that service as being VAT-exempt? Unfortunately not according to two CJEU decisions: Deutsche Bank AG (in 2012) and Blackrock Investment Management (UK) Ltd (in 2020).
So, what is the solution? Well, the Upper Tribunal’s 2010 decision in the case of The Lower Mill Estate Limited confirmed that “…apart from any abuse or sham, it is not possible to combine supplies by two suppliers under two contracts so as to result in one supply for VAT purposes.”
Groups making predominantly VAT-exempt supplies (e.g. insurance brokers, financial services intermediaries) wanting to recharge centrally-acquired costs to one or group companies that are not members of the same VAT group (e.g. a non-UK group services company supplying back-office support services to UK subsidiaries), some of which would be VAT-exempt if supplied independently. They might want to consider having different group services companies supply different services, e.g. one group services company supplies only VAT-exempt services under one contract to the group subsidiaries, and another group services company supplies the remaining VAT-able services to them under another contract. Whilst such arrangements are not immune to HMRC challenge, they might be more defendable in the tribunals/courts than JPMorgan’s single contract arrangement.
For more information, get in touch with Mark Ellis, VAT Partner.
