Fixed establishment for VAT purposes: own staff required
Locations
Just over a year after the Dong Yang decision, the Court of Justice of the European Union ("CJEU") rendered its decision in the Titanium case and further specifies the heavily debated notion of "fixed establishment" for VAT purposes.
Context
Following the decision of the CJEU in the Welmory case in 2014, several EU member States tend to interpret the notion of "fixed establishment" quite broadly. In this decision, the CJEU seemed to leave the door open to the possibility for a foreign company to be considered as possessing a fixed establishment through the human and technical resources of another taxable person.
The ambiguous wording of the Welmory decision resulted in numerous litigations across the EU in various sectors (manufacturing, logistic, digital, etc.), where the involvement of third parties (being group entities or not) was considered by some member States as providing foreign taxable persons with sufficient resources to constitute a fixed establishment of these taxable persons.
With the surge of increasing litigations, each decision from the CJEU on the issue of fixed establishment is now expected by practitioners.
The Dong Yang decision already provided welcome limitations to the enthusiasm of some member States. The CJEU first seemed to restrict the possibility to consider a third party as constituting a fixed establishment to abusive situations. It furthermore clearly decided that a service provider does not have to enquire, into contractual relationships between the parent company and the subsidiary, whether this latter could constitute a fixed establishment of the parent company.
The Titanium decision is another milestone in the fixed establishment saga.
Facts of the Titanium case
Titanium, a real estate company whose registered office and management are located in Jersey, owns a property in Austria which is let to Austrian taxable person.
Having no other presence or staff in Austria than the real estate asset leased, Titanium appointed an Austrian real estate management company in order to manage, under Titanium's supervision, the suppliers and handle the administrative obligations related to its activities in Austria. The decision-making power related to the leasing of the property (termination, engagement, economic and legal conditions of the leases, decision regarding the repairs and the suppliers, etc.) was retained by Titanium.
As Titanium was of the opinion that it did not have a permanent establishment in Austria for VAT purposes, the VAT due on the leases was paid by the Austrian tenants in application of the reverse charge mechanism. The Austrian VAT authorities however argued that Titanium must be considered as having a fixed establishment for VAT purposes in Austria and claimed the payment of the VAT due on the lease to Titanium.
Decision in the Titanium case
The CJEU reminds that a structure without its own staff cannot fall within the scope of the concept of a fixed establishment. The CJEU refers in this respect to its previous decision in the case ARO Lease.
Having noted that Titanium does not have any staff of its own in Austria and that Titanium remains responsible for all key decisions concerning its activities in Austria, the CJEU concluded that Titanium does not possess the human resources enabling it to act independently. In these circumstances Titanium cannot be considered as having a fixed establishment in Austria.
Importance of the decision
Considering the current discussions across the EU and in Belgium around the concept of "fixed establishment", this decision from the CJEU brings further elements to the taxable person to challenge the position defended by the local VAT authorities.
Without own staff in a member State and with the decision-making power remaining in the hands of the foreign taxable person, this taxable person cannot be considered as having a fixed establishment solely by possessing infrastructures in that Member State.
In case of questions, please do not hesitate to contact Geoffroy Galéa and Lionel Wellekens.
If you'd like to see our other insights and publications, please click here.
Context
Following the decision of the CJEU in the Welmory case in 2014, several EU member States tend to interpret the notion of "fixed establishment" quite broadly. In this decision, the CJEU seemed to leave the door open to the possibility for a foreign company to be considered as possessing a fixed establishment through the human and technical resources of another taxable person.
The ambiguous wording of the Welmory decision resulted in numerous litigations across the EU in various sectors (manufacturing, logistic, digital, etc.), where the involvement of third parties (being group entities or not) was considered by some member States as providing foreign taxable persons with sufficient resources to constitute a fixed establishment of these taxable persons.
With the surge of increasing litigations, each decision from the CJEU on the issue of fixed establishment is now expected by practitioners.
The Dong Yang decision already provided welcome limitations to the enthusiasm of some member States. The CJEU first seemed to restrict the possibility to consider a third party as constituting a fixed establishment to abusive situations. It furthermore clearly decided that a service provider does not have to enquire, into contractual relationships between the parent company and the subsidiary, whether this latter could constitute a fixed establishment of the parent company.
The Titanium decision is another milestone in the fixed establishment saga.
Facts of the Titanium case
Titanium, a real estate company whose registered office and management are located in Jersey, owns a property in Austria which is let to Austrian taxable person.
Having no other presence or staff in Austria than the real estate asset leased, Titanium appointed an Austrian real estate management company in order to manage, under Titanium's supervision, the suppliers and handle the administrative obligations related to its activities in Austria. The decision-making power related to the leasing of the property (termination, engagement, economic and legal conditions of the leases, decision regarding the repairs and the suppliers, etc.) was retained by Titanium.
As Titanium was of the opinion that it did not have a permanent establishment in Austria for VAT purposes, the VAT due on the leases was paid by the Austrian tenants in application of the reverse charge mechanism. The Austrian VAT authorities however argued that Titanium must be considered as having a fixed establishment for VAT purposes in Austria and claimed the payment of the VAT due on the lease to Titanium.
Decision in the Titanium case
The CJEU reminds that a structure without its own staff cannot fall within the scope of the concept of a fixed establishment. The CJEU refers in this respect to its previous decision in the case ARO Lease.
Having noted that Titanium does not have any staff of its own in Austria and that Titanium remains responsible for all key decisions concerning its activities in Austria, the CJEU concluded that Titanium does not possess the human resources enabling it to act independently. In these circumstances Titanium cannot be considered as having a fixed establishment in Austria.
Importance of the decision
Considering the current discussions across the EU and in Belgium around the concept of "fixed establishment", this decision from the CJEU brings further elements to the taxable person to challenge the position defended by the local VAT authorities.
Without own staff in a member State and with the decision-making power remaining in the hands of the foreign taxable person, this taxable person cannot be considered as having a fixed establishment solely by possessing infrastructures in that Member State.
In case of questions, please do not hesitate to contact Geoffroy Galéa and Lionel Wellekens.
If you'd like to see our other insights and publications, please click here.