The concept of Fixed Establishment remains an issue for businesses. Whether a company has a Fixed Establishment for VAT is important to determine the place of supply of services and the liability to pay VAT. When businesses have the full right to deduct input VAT, the impact of a Fixed Establishment for VAT purposes could be regarded “only cash flow”. Still, having a a Fixed Establisment (or not) allows local tax authorities to levy interests and penalties on companies, and the administrative requirements (including invoicing) may be different. Also, even though the concept of a Fixed Establishment for VAT purposes is not the same as the concept of Permanent Establishment for direct tax purposes, businesses are concerned that tax authorities will claim a Permanent Establishment based on the existence of a Fixed Establishment.
Over the past couple of months, the concept of Fixed Establishments has been discussed at the level of the European Commission, in ECJ cases, and in local court cases in the Member States.
VATupdate.com prepared the overview of the recent developments.
EUROPEAN COMMISSION
At the 113th meeting of the VAT committee, the implementation of the Quick Fixes was discussed. This included a discussion on whether the (new) call-off stock arrangements would result (or not) in a Fixed Establishment for VAT purposes for the owner of the consignment stock in another Member State. We understand there was no consensus amongst the delegations of the Member States at least on some points. The outcome of the VAT Committee was also mentioned in the Explanatory Notes on Quick Fixes which were issued end of December 2019.
- EC Action plan – 25 priorities defined. Fixed establishments and E-Invoicing only being worked in 2022/23
- VAT Expert Group – Meeting May 11, 2020: As part of the discussion on WP#091 – Upgrading the EU VAT system, a reflection onpossible ways forwar, the VAT Expert Group considered further work is required on Fixed Establishments (next to other topics) Link to www.vatupdate.com
- EU VAT Committee – Minutes of the 113th meeting compared to Guidelines Link to vatupdate.com and Link to vatupdate.com
- European Commission published final version of the Explanatory Notes on Quick Fixes applicable as of Jan 1, 2020 Link to vatupdate.com
- Poland: Court case on Fixed Establishment in Poland already referring to C-547/18 Dong Yang (next to many other ECJ cases) Link to vatupdate.com
There is no Fixed Establishment as provision of warehousing services is not equivalent of making warehousing space / infrastructure available to a company. A fact that a foreign Company and a Polish company agreed some quality standards does not mean (what was one of arguments of Polish tax authorities) that the foreign Company controls the Polish entity’s personnel and technical infrastructure. - And back in 2016, the VAT Expert Group issued a Draft Opinion on Welmory sp. z o.o. (Case C-605/12).
ECJ CASES
There have been many ECJ court cases already decided in the past. The uncertainty remained. Business were looking forward to the decision of the Dong Yang (C-547/18) case. The Opinion of the AG was very promising, and if that opinion would be followed, it may have been a good outcome for businesses and offer opportunities to avoid discussions with tax authorities. The jugdment itself was somewhat disappointing in that respect, as the ECJ did not ‘burn its fingers’ and gave a somewhat ‘tame’ decision. Recently, another Question has been raised by an Austrian Court on Fixed Establishments, something to look forward to.
- Good things to remember – how to shed some light on the FE concept Link tp vatupdate.com
- ECJ case C-547/18 (Dong Yang) – Decision – Subsidiaries only VAT Fixed Establishment if there are abusive practices (26 newsletters attached)
- ECJ C-931/19 – Titanium vs Austria – Questions – Concept of ‘fixed establishment’ – staff required? Link vatupdate.comLink tp vatupdate.com
Is the term ‘fixed establishment’ to be understood in such a way that there must always be the commitment of personnel and technical equipment, and thus necessarily the staff of the service provider must be present in the establishment or, in specific cases, an establishment may also be regarded as a ‘permanent establishment’ without the deployment of staff?
COURT CASES IN THE EU MEMBER STATES
The concept Fixed Establishment has been discussed recently in Poland, Spain, and Germany. The outcome was mixed, which shows the uncertainty around the concept.
- Overview Polish Court Cases on Fixed Establishments referring to C-605/12 Welmory in 2019 Link to vatupdate.com
- Court decision: Warehousing services by a Polish entity for the account of a Portguese entity leads to a Fixed Establishment
- Court decision: Does a Polish subcontractor performing logistic services lead to a Fixed Establishment?
- Spain: Lease of a warehouse for the distribution of products constitutes a fixed establishment Link to vatupdate.com
- Germany – Bundesfinanzhof does not answer VAT fixed establishment question…again Link to vatupdate.com
OTHER REFERENCE MATERIAL
- Good things to remember… the EU principle of legal certainty and fixed establishments Link to vatupdate.com
- Good things to remember – how to shed some light on the FE concept Link tp vatupdate.com
- Some thoughts on transactions attribution, fixed establishments and VAT Link to vatupdate.com
- Germany – Distinction between active and passive fixed establishment for VAT purposes
