On July 4, 1985, the ECJ issues his decision on C-168/84 (Berkholz) related to the existence of a Fixed Establishment
Article in the EU VAT Directive
Article 9(1) and 15(8) of the Sixth Council Directive (Articles 44 and 148(d) of the EU VAT Directive 2006/112/EC)
Article 44
The place of supply of services to a taxable person acting as such shall be the place where that person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the taxable person who receives such services has his permanent address or usually resides.
Article 148 (Exemption)
Member States shall exempt the following transactions:
(a) the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships’ provisions;
(b) the supply of goods for the fuelling and provisioning of fighting ships, falling within the combined nomenclature (CN) code 8906 10 00, leaving their territory and bound for ports or anchorages outside the Member State concerned;
(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels referred to in point (a), and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;
(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes;
Facts
- The activities of the applicant in the main proceedings, the undertaking abe-Werbung Alfred Berkholz, whose registered office is in Hamburg, include the installation and operation of gaming machines, juke boxes and the like.
- It operates most of its machines in public houses in Schleswig-Holstein and Hamburg but has also installed some gaming machines on board two ferryboats owned by the Deutsche Bundesbahn [Federal German Railways] which ply between Puttgarden on the German island of Fehmarn and Rodbyhavn (Denmark).
- Those machines are maintained, repaired and replaced at regular intervals by employees of abe-Werbung, who settle accounts with the Deutsche Bundesbahn in situ. Although those employees spend a proportion of their working hours in carrying out those operations, the applicant does not maintain a permanent staff on the ferryboats.
- The German tax authorities consider that approximately 10% of the turnover generated by the gaming machines arises when the vessels are in the German port, 25% during the passage through German territorial waters and the remainder on the high seas, in Danish territorial waters or in the Danish port.
- The Finanzamt charged tax on the entire turnover generated in 1980 by abe-Werbung on the two ferries, deeming it to have arisen at abe-Werbung’s place of business in Hamburg and hence in the German collection area in accordance with Paragraph 3 (a) (1) of the Umsatzsteuergesetz [Law on turnover tax] 1980, which was introduced pursuant to Article 9 (1) of the Sixth Directive.
- The Finanzamt further considers that the conditions laid down for the grant of tax exemption in Paragraph 4 (2) read in conjunction with Paragraph 8 (1) (5) of the Umsatzsteuergesetz 1980, which correspond to Article 15 (8) of the Sixth Directive, are not fulfilled, on the ground that the turnover generated by the gaming machines was not generated in meeting the direct needs of sea-going vessels.
Questions
(1) Must Article 9 (1) of the Sixth Council Directive, of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes
(77/388/EEC) be interpreted as meaning that the term ‘fixed establishment’ also covers facilities for conducting a business (such as, for example, the
operation of gaming machines) on board a ship sailing on the high seas outside the national territory? If so, what are the relevant criteria for the existence of a
‘fixed establishment’?
(2) Must Article 15 (8) of the Sixth Directive be interpreted as meaning that services to meet the direct needs of sea-going vessels cover only those
necessarily connected with maritime shipping or do they also include other services which are provided on board ships but are no different from
corresponding services provided on land, such as, for example, the operation of gaming machines?
AG Opinion
(1) Article 9 (1) of the Sixth Council Directive (77/388/EEC), of 17 May 1977, should be interpreted as meaning that the term ‘fixed establishment’ includes,
inter alia, an installation (such as a gaming machine), provided that it is permanently installed in a specific place and requires for its operation the
employment of personnel;
(2) Article 15 (8) of the Sixth Directive should be interpreted as meaning that only services which are necessarily connected with navigation are intended to meet the direct needs of the vessel or its crew.
Decision
(1) Article 9 (1) of the Sixth Council Directive, of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment must be interpreted as meaning that an installation for carrying on a commercial activity, such as the operation of gaming machines, on board a ship sailing on the high seas outside the national territory may be regarded as a fixed establishment within the meaning of that provision only if the establishment entails the permanent presence of both the human and technical resources necessary for the provision of those services and it is not appropriate to deem those services to have been provided at the place where the supplier has established his business.
(2) Article 15 (8) of the Sixth Directive must be interpreted as meaning that the exemption for which it provides does not apply to the operation of gaming machines installed on board the sea-going vessels referred to in that article.
Summary
The place where the service provider has established his business has priority as a connecting factor, so that another place of establishment from which the service is provided can be taken into account only if the connection to the place of establishment is not a rational solution from a tax point of view or if it creates a conflict with another Member State, see paragraph 17 of Case C-164/84 Berkholz.
Source: Curia
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