Emma Galvin, VAT Director, BDO: On 19 November 2025, the Revenue released a Tax and Duty Manual, “Territorial Scope of VAT Groups”, which sets out a major change in the territorial scope of VAT Groups in Ireland, bringing its interpretation in line with the Skandia (C 7/13) and Danske Bank (C-812/19) principles.

Prior to its release, the Revenue took a broad interpretation of the Irish VAT Grouping rules for head offices and branches, and as outlined in published non-statutory Revenue guidance viewed the whole entity as being a member of the Irish VAT Group i.e., including any overseas head office or branches (if applicable), and not just the Irish establishment, commonly referred to as the “whole entity” approach.

The consequence of this interpretation was that any transactions between the overseas establishment/s and members of the Irish VAT Group were not considered supplies for VAT purposes (subject to the normal VAT Group exceptions).

As a result of continuing to apply the “whole entity” approach, the Revenue had not implemented the Skandia (C 7/13) and Danske Bank (C-812/19) principles.

However, effective immediately for any VAT Groups formed from 19 November 2025, and effective from 1 January 2027 for any existing VAT Groups as of 19 November 2025, Irish VAT Grouping will only be available to Irish establishments.

This means that non-Irish head offices or branches may not be members of an Irish VAT Group and therefore supplies between such non-Irish establishments and an Irish VAT Group cannot be disregarded and should be within the scope of VAT (subject to the normal VAT rules).
This represents a significant change in the VAT treatment applicable to the receipt of services by Irish VAT Groups from the VAT Group members’ non-Irish establishments – see some examples set out below.

Example 1 - an Irish company and an Irish branch of a French company form an Irish VAT Group. The French head office supplies services to the Irish VAT Group. The supply of the services may now fall within the scope of VAT, and the VAT Group may be obliged to account for VAT on the reverse charge basis (subject to the services being taxable services).

Example 2 - a Luxembourg company is a member of a VAT Group in Luxembourg. The Luxembourg company has a branch in Ireland. The Luxembourg head office supplies services to the Irish branch. The supply of the services may now fall within the scope of VAT, and the Irish branch may be obliged to account for VAT on the reverse charge basis (subject to the services being taxable services).

It should be highlighted however that there should be no change to the VAT treatment applicable to supplies between head offices and branches where neither the head office nor the relevant branch is a member of VAT Groups in Ireland or in another EU Member State.

Businesses that have its head office or a branch in Ireland and where the business’s head office and/or branches are members of a VAT Group in Ireland or in another EU Member State need to immediately assess the impact of this change, in particular, those with restricted VAT recovery entitlement e.g., funds, banks, insurance companies etc., as this change could have a real bottom line cost for such businesses.

There may also be scope for VAT recovery rates potentially increasing because of transactions that were previously disregarded for VAT purposes now coming within the scope of VAT.

Deirdre Barnicle, Partner, McCann FitzGerald: As a result of the new Revenue guidance on the territorial scope for VAT groups, Irish VAT will now apply to many cross-border businesses where they form part of an Irish or other EU-country VAT group. This change will take effect immediately for new VAT Groups formed from 19 November and from 1 January 2027 for all other VAT Groups. While some businesses will benefit from increased VAT recoverability, those companies whose VAT recovery entitlements are restricted (e.g. insurance providers, banks and funds) could suffer from increased VAT leakage.

Previously, services supplied between a VAT grouped Irish establishment and its establishments abroad were disregarded under Irish VAT Grouping rules. Irish Revenue took a ‘whole entity’ approach to VAT groupings; this meant that any Irish VAT Group would include the Irish establishment as well as its overseas head office or branches. As a result, supplies between the different branches of the one legal entity were not considered VAT-able. This was the case even though the foreign branches were not members of the Irish VAT Group.

However, with effect from 19 November 2025 (in the case of new VAT Groups), the only establishments allowed to form part of an Irish VAT Group will now be those located in Ireland. This development has several consequences and will increase VAT leakage for some while improving VAT recoverability for others. Where, for instance, an Irish company and the Irish branch of a company headquartered in Germany form part of an Irish VAT Group, and the German HQ supplies services to the Irish VAT group, Irish VAT will now be applicable (to the extent those supplies are taxable) and the VAT group must account for Irish VAT on a reverse-charge basis. Equally, where, for example, a business forms part of a VAT Group in France, and the French HQ provides supplies to its Irish branch, this supply could now be subject to Irish VAT (to the extent those supplies are taxable) and the Irish branch may have to account for VAT on a reverse charge basis. Even though the French HQ and Irish branch are the one legal entity, by virtue of the French HQ joining a VAT Group in France, two separate taxable persons have been created. The new approach means that insurance providers, banks and funds (which are only entitled to limited VAT recovery) and other businesses providing VAT exempt services will likely see increased VAT leakage.

On the other hand, there will be businesses whose intra-group dealings with overseas branches are now taxable; the recovery rates of these entities will improve, and the change represents an economic opportunity for them. For example, where an Irish branch supplies services to an overseas establishment, the Irish branch can now recover VAT where the overseas branch forms part of a VAT Group in another EU country. Previously, these transactions would have been disregarded for VAT purposes. Where branches of a company are based in different EU countries and no VAT Group is in place, supplies between these businesses will continue to be disregarded.

While new VAT Groups are subject to the change with immediate effect, VAT Groups established before 19 November 2025 have until 1 January 2027 to prepare. Companies operating in several EU countries should consider their existing structures to determine what effect Irish Revenue’s ‘local establishment’ approach will have on intra-group transactions. Either VAT de-grouping or the creation of a new VAT Group might be advantageous depending on the circumstances.

Michael Tansley, Tax Director, Walkers (Ireland) LLP: The key change confirmed in the new guidance is that VAT grouping is only available to establishments located within Ireland. This new approach in interpretation aligns with the CJEU decisions in Skandia America Corp (C-7/13) and Danske Bank (C-812/19) and the position adopted in other EU Member States where the VAT group rules restrict membership to establishments in that EU Member State. The new guidance essentially means that foreign establishments (e.g. foreign branch) of the same legal entity are excluded from an Irish VAT group. Additionally, membership of a VAT group in another EU Member State can also potentially impact the Irish VAT analysis.

It is important to note that the guidance has immediate effect for any VAT groups established after the publication of the guidance (publication occurred on 19 November 2025) whereas existing VAT groups are required to implement the guidance by 31 December 2026.

Taxpayers should review their existing VAT grouping arrangements (both within and outside of Ireland) to determine whether they may be impacted by the new guidance and whether any restructuring alternatives exist. Those taxpayers potentially most impacted by the change in interpretation are those that do not have a full entitlement to VAT recovery such as asset managers, banks and insurers engaged in VAT exempt financial services.

Paraic Burke, Head of Tax, PwC Ireland: On 19 November 2025, Revenue published updated guidance on the territorial scope of VAT groups. This new guidance implements recent EU case-law and brings Ireland in line with the approach taken in most other EU Member States that have a VAT grouping regime. The new approach to the territorial scope of VAT groups was effective immediately from 19 November 2025 for new VAT groups and will be effective from 1 January 2027 for existing VAT groups.

This new guidance is of relevance to businesses with an Irish establishment (head office / branch) which is in an Irish VAT group, and which is engaged in intra-entity supplies with non-Irish establishments (head office / branch).

The change is that services purchased by the VAT-grouped Irish establishment from its head office or foreign branch may now be regarded as transactions between two entirely separate establishments for VAT purposes. This could lead to additional VAT costs, as these intra-entity services, which were previously disregarded for VAT purposes, may now be subject to reverse charge VAT in Ireland.

Impacted businesses should review how the new rules affect services between Irish establishments and overseas branches, identify transactions that were previously disregarded and determine whether they now fall within the scope of Irish VAT. This assessment is critical for businesses with complex structures or multiple VAT groups across jurisdictions.

This article appeared in the January 2026 edition of the Irish Tax Monitor.