Germany: 145. ECJ - VAT Fixed Establishment Concept (ARO)

Last Updated: 8 July 1998
KPMG Germany Webpage
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The ECJ has handed down a ruling in the ARO leasing case, reported on in article no. 47. At issue was whether ARO Lease BV, a Dutch limited liability company, had a fixed establishment in Belgium constituting the place of performance of its Belgian car leasing activities for VAT purposes. ARO and the Belgian tax authorities argued that this was the case. The ECJ has now rejected this position and decided in favour of the Dutch tax authorities, who contended that the place of performance of the Belgian leasing activities was in the Netherlands at ARO's principal place of business because ARO had no VAT fixed establishment in Belgium (decision of 17 July 1997 - DStRE 1998, 725). The case was decided under Article 9 (1) of the Sixth VAT Directive.

The facts of the case were as follows: Besides leasing roughly 6,000 vehicles to Dutch customers, ARO also leased some 800 vehicles to customers in Belgium (90 % commercial customers, 10 % private customers). The customers were obtained through independent (self-employed) Belgian intermediaries. The Belgian customers picked the type of car they wanted at Belgian car dealers and the Dutch leasing firm then purchased the car and arranged for delivery after signature of contracts prepared by itself in Holland. The Dutch leasing firm maintained no office of its own in Holland and had no vehicle parking space there. It was the owner of the leased vehicles both for civil law and tax purposes (operating leasing). The case in favour of a Belgian fixed establishment was apparently based primarily on the presence in Belgium of a substantial fleet of vehicles belonging to the Dutch lessor.

The court held specifically that "when a leasing company does not possess in a Member State either its own staff or a structure which has a sufficient degree of permanence to provide a framework in which agreements may be drawn up or management decisions taken and thus to enable the services in question to be supplied on an independent basis, it cannot be regarded as having a fixed establishment in that state" (par. 19). As a general matter, the court stated that the presence of a fixed establishment required the material and human resources necessary for performance of services of the type involved (par. 15).

The decision is consonant with German law on point. Whether services have been provided through a "fixed establishment" (Betriebsstaette) within the meaning of sec. 3a par. 1 sentence 2 UStG is decided using the definition of "fixed" or "permanent" establishment contained in sec. 12 AO (which applies for all other domestic tax purposes as well). This definition requires some facility or place of business under the control of the enterprise in question.

Based on the holding of the ECJ, it would appear possible for a car lessor to locate in an EU country with a low rate of VAT and charge this low rate on cars leased in countries with higher VAT rates, provided the structure chosen is similar to that used by ARO. This would provide a certain competitive advantage especially with respect to transactions with private customers not entitled to the input VAT credit.


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This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

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