The ruling is mainly expected to impact banks and insurance firms, which have branches in the UK and are headquartered outside and vice versa.
Under the current practice, local branches and their overseas establishments are being considered as a single taxable person for VAT within Europe.
But they will now be required to pay additional VAT of 20% for receiving services at its branches from main establishments situated outside the EU.
KPMG UK financial services indirect tax head Richard Iferenta said: "What this ruling does is, at a stroke, add hundreds of millions of pounds to the annual cost of financial institutions doing business in the UK and other EU member states.
"Furthermore with the UK’s position as a global financial services centre and the consequential level of inward investment into the UK by foreign financial services business that flows from that, the financial impact of the judgement may be felt hardest in the UK.
"Financial institutions are likely to examine their VAT grouping arrangements and which services they are buying in from outside the EU. Some may decide to change their existing models as a result."
