The Court of Justice of the European Union (ECJ) ruled in the Titanium case (C‑931/19) that own staff is required for a (sales) VAT fixed establishment (FE) to be present in an EU Member State (EU MS). In this case, the Court specified that when the owner of an immovable property in a EU MS, uses that property for a letting activity without making use of its own local staff, that activity does not constitute a FE.
Facts of the case
Titanium is a company established in Jersey, which owned immovable property in Austria. The company did not possess any other assets in Austria, nor did it employ any local staff of its own. The property management was outsourced to an Austrian real estate agent, with Titanium continuing to take all key business decisions, such as the entering into or terminating of tenancy agreements and making decisions relating to capital expenditure and repairs, from Jersey.
Contrary to the Austrian tax authorities, the ECJ held that merely owning and letting immovable property by Titanium did not create a FE in Austria, which requires a sufficient degree of permanence and a suitable structure, in terms of human and technical resources, to supply services on an independent basis. Since Titanium did not have any own staff in Austria and the real estate agent was not allowed to make key decisions regarding the lease, the presence of Titanium in Austria was not sufficient to constitute a FE.
Consequences in practice
The ECJ ruling confirmed the importance of having own local staff when assessing whether a taxable person disposes of a FE. In the Welmory case (C-605/12) the ECJ left the door open for an interpretation whereby a taxable person could be regarded as having a FE in another EU MS because external human and technical resources were present in that EU MS. In the Titanium case the court now seems to confirm that having local staff is one of the requirements to have a FE, even in cases where relatively limited human effort is required to perform a certain service, such as the letting of immovable property.
It must be noted however that the ECJ hints that a FE could still be found to exist, even in the absence of own staff, if the key business decisions concerning the activity question are outsourced to a third-party service provider, which would allow the local structure to independently perform its activities. Consequently, this will still provide grounds for tax authorities to take different positions, which could potentially lead to cross-border mismatches between EU MS.
Having such a FE in an EU MS can have a significant impact on the VAT position of the foreign VAT taxable person/supplier (being the same person as its FE). Here we can think of: the necessity of a local VAT registration, the VAT domestic reverse charge mechanism might no longer be applicable, VAT invoicing requirements can change and the new VAT position can have an impact on the input VAT recovery right. But also for the customer this can have an adverse consequence: if VAT was charged whereas this should have been an invoice without VAT that VAT is in principle not recoverable. Next to a VAT assessment, fines and interests can then also be levied in the head of the customer.
Belgian and Luxembourg Administrative stances
Relying on already well settled case law, the Belgian and Luxembourg VAT administrative guidelines both state that in order to be considered as a FE, two things are required. First, a sufficient degree of permanence and, second, a structure that is, in terms of human and technical resources, adequate to supply the services in question on an independent basis.
In Belgium, the VAT administration does not take a specific point of view with regards to the required presence of own staff for the constitution of a FE when determining whether human and technical resources are present on in Belgium. On the other hand, the Luxembourg VAT authorities apply the main rule broadly and often accepted that outsourced staff, though it is not a taxable person’s own, could still be considered as fulfilling the “sufficient human resources” condition.
It will be interesting to see how the local practices will evolve, also in other EU MS. Even after this latest ruling of the ECJ, determining whether there is a FE or not remains to be assessed taking into account all the facts of the individual case. The next ECJ case in this respect we are looking forward to is Berlin Chemie A. Menarini SRL (C-333/20).
Gert Vranckx - Senior Associate (firstname.lastname@example.org)
Ngoc-My Nguyen - Senior Associate (email@example.com)
Lode Van Dessel - Associate (firstname.lastname@example.org)
Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of:
- Koen Morbée (International and EU corporate tax, email@example.com);
- Michiel Boeren (International and EU corporate tax, firstname.lastname@example.org);
- Katrien Bollen (HR tax and global mobility, email@example.com);
- Ben Plessers (Transfer Pricing and Valuations, firstname.lastname@example.org);
- Gert Vranckx (VAT, customs, excises and other indirect taxes, email@example.com);
- Rik Smet (International and EU corporate tax, firstname.lastname@example.org).
In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board.