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The second tax chamber of the Gerechtshof in Amsterdam recently placed a question of considerable practical significance and great theoretical interest before the European Court of Justice for its resolution. The case involves a car leasing company based in the Netherlands which, in addition to roughly 6,000 vehicles leased to Dutch customers, also leased some 800 vehicles to customers in Belgium (90 % commercial customers, 10 % private customers). The customers were obtained by independent Belgian go-betweens. The Belgian customers picked the car they wanted at Belgian car dealers and the Dutch leasing firm then purchased the car and arranged for delivery after contracts prepared by itself in Holland had been signed. The Dutch leasing firm maintained no office of its own in Holland. It was the owner of the leased vehicles both for civil law and tax purposes (operating leasing).

At issue is the place of performance of the car leasing service for VAT purposes. While the parties to the action agree that the place of performance is determined by the lessor's place of business, the Dutch tax authorities contend that this is in the Netherlands, whereas the taxpayer and the Belgian tax authorities believe that the lessor has a permanent establishment in Belgium to which the services are to be attributed and that the services therefore cannot be subjected to Dutch VAT (which would result in a refund of Dutch VAT paid in the particular instance). The Belgian position is apparently based primarily on the presence in Belgium of a substantial fleet of vehicles belonging to the Dutch lessor.

The Dutch court ruled that the issue was not clearly resolved either under Dutch VAT law or under Article 9 par. 1 of the 6th VAT Directive, and therefore stayed its proceedings pending a decision of the European Court of Justice.

The theoretical interest of the case pertains to the concept of a permanent establishment. Under the facts as stated, the Dutch company would appear to have no permanent establishment in Belgium. In order to decide in favour of the Belgians, the ECJ would have to interpret the concept for VAT purposes in a way which was significantly broader than the meaning the concept has for tax treaty purposes or, at least in Germany, under national tax law. The German position on this point is clear. Whether services have been provided through a "permanent establishment" (Betriebsstaette) within the meaning of sec. 3a par. 1 sentence 2 UStG is decided using the definition of 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.

The practical import of the case relates to the still considerable differences in VAT rates throughout Europe. Assuming the structure here involved avoids a Belgian permanent establishment for VAT purposes, any car lessor using a similar structure could choose to locate in an EU country with a low rate of VAT and lease into countries with high VAT rates. This would provide a certain competitive advantage especially with respect to transactions with private customers not entitled to the input VAT credit.

We point out that the case here described does not involve another interesting discrepancy existing among the various EU member states, namely the way in which delivery of goods is distinguished from services in certain cases.

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