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Concept of Fixed Establishment remains a huge concern for businesses …… an overview of recent developments

06 March 2020
1,694 views
4 min read

The concept of FIxed Establishment remains an issue for businesses. Whether a company has a Fixed Establishment is important to determine the place of supply of services and the Liability to pay VAT. When businesses have the full right tp deduct the VATm the impact of  a Fixed Establishment for VAT purposes is only ”cash flow”. Fixed Establisments (or not) only allows tax authorities to levy interests and penalties on companies. Also, even of 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, andcourt cases in the Member States. AN overview:

 

AT THE LEVEL OF THE EUROPEAN COMMISSION

At the 113th meeting of the VAT commitee, the implementation of the Quick Fixes was discussed. This included a discussion on whether the call-off stock arrnagements would lead (or not) to a Fixed Establishment for VAT purposes. 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 Dec 2019.

There is no Fixed Establishment as provision of warehousing services is not equivalent of making warehousing space / infrastructure available to Company. A fact that Lux Company and Polish company agreed some quality standards does not mean (what was one of arguments of Polish tax authorities) that Lux Company controls Polish entity’s personnel and technical infrastructure.

 

ECJ CASES

There have been many ECJ court cases already decided in the past. The uncertainty remained. Business are now looking forward to the decision of the Dong Yang (C-547/18) case. If AG Opinion would be followed, it may be a good outcome for businesses and offer opportunities to avoid discussions wit htax authorities. Recently, another Question has been raised by an Austrian Court on Fixed Establishments

  • Good things to remember – how to shed some light on the FE concept Link tp vatupdate.com
  • ECJ case C-547/18 (Dong Yang) – Comments – Subsidiaries only VAT Fixed Establishment if there are abusive practices  Link to vatupdate.com  Link to vatupdate.com  Link to vatupdate.com Link tp vatupdate.com 
  • ECJ C-931/19 – Titanium vs Austria – Questions – Concept of ‘fixed establishment’ – staff required? Link vatupdate.comLink tp vatupdate.com– Not yet on Curia 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 

  • 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

 

 

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