OUR INSIGHTS AT A GLANCE
- In June, the CJEU ruled on the concept of a fixed establishment for VAT purposes.
- According to the CJEU, the existence of a mere building without any human resources enabling it to act independently does not qualify as a fixed establishment from a VAT perspective.
- The CJEU clarified that having local staff members is part of the requirements to have a fixed establishment for VAT purposes.
In the decision C-931/19 published in June, the Court of Justice of the European Union ("CJEU") ruled that a foreign company does not have a fixed establishment for VAT purposes in a Member State if its activity is limited to the exploitation of a real estate without having any human resources locally to do so.
The case opposed the Jersey-based company Titanium Ltd. to the Austrian tax authorities. Titanium owns and exploits a real estate in Austria. While key decisions in relation to the business are made in Jersey (entering into new rental agreements, financial conditions, etc.), Titanium has no employees in Austria and receives the assistance of a local real estate management company acting between the various local service providers and the tenants.
Titanium considered that it was not liable to charge VAT on the rents related to the Austrian property on the grounds that it did not have a fixed establishment in Austria. Unlike Luxembourg, for these situations, Austria implemented an optional regime foreseen by the EU VAT directive where the obligation to charge VAT is shifted to the recipient of the services under the reverse charge mechanism. According to Titanium, it was therefore the liability of the two tenants to declare Austrian VAT under the reverse charge mechanism on the rents invoiced without VAT.
The Austrian VAT authorities were of the opinion that owning and exploiting the Austrian real estate involves the existence of an Austrian fixed establishment and that Titanium had to charge VAT to the two tenants.
Titanium appealed to the Austrian Federal Finance Court against the decision arguing that, in the absence of staff, the building could not be regarded as being a fixed establishment. The Federal Finance Court decided to refer the question on the "fixed establishment" notion to the CJEU.
Decision of the CJEU and potential impacts
By its question, the referring Court asked whether a leased property constitutes a fixed establishment when the foreign owner does not have its own staff to provide services related to the letting in the jurisdiction where the real estate is located.
The CJEU started by reminding its settled case-law based on which the concept of "fixed establishment" requires a sufficient degree of permanence and a structure adequate, in terms of human and technical resources, to supply the services in question on an independent basis.
Noticing that Titanium has no staff in Austria, the Court ruled that the existence of a mere building without any human resources enabling it to act independently does not qualify as a fixed establishment from a VAT perspective.
This case confirms that having local staff members is part of the requirements to have a fixed establishment for VAT purposes. While this case brings some clarifications, questions could nevertheless remain open in case the nonresident company supervises the staff of a third party directly involved in the local business.
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