In a judgment dated 3 June 2021, the European Court of Justice (“ECJ”) ruled that own staff is required for a finding of “fixed establishment” within the meaning of Directive 2006/112/EC as amended (the “VAT Directive”).
Facts of the case
In the case at hand, a Company with registered office and management located in Jersey let, subject to tax, a property which it owned in Vienna (Austria) to two Austrian traders. This was the Company’s sole activity in Austria and the Company appointed an Austrian real estate management company to act as an intermediary in the day-to-day management of the property. The Company did not engage any staff in Austria and retained decision-making powers in relation to the management of the leases.
The Austrian tax authority took the view that a property owned by Titanium constituted a fixed establishment and, therefore, determined an amount of VAT chargeable to that Company (as opposed to VAT being payable by the tenant under the Austrian domestic reverse charge mechanism). The Company brought an action before the Federal Finance Court against the tax authority’s decision and the matter was referred to the ECJ.
Finding of the Court
The ECJ found that a property which is let in a Member State in the circumstance where the owner of that property does not have his or her own staff to perform service relating to the letting does not constitute a fixed establishment within the meaning of the VAT Directive. In particular, the ECJ noted that a “fixed establishment” implies a minimum degree of stability derived from the permanent presence of both the human and technical resources necessary for the provision of a given services.
However, the ECJ seemed to place particular emphasis on the fact that the persons responsible for management tasks were contractually appointed while the Company reserved for itself all important decisions concerning the letting of the property in question. It therefore remains open whether the ECJ would have reached a different conclusion if the Company had also contractually delegated key decisions regarding the letting of the property to the intermediary located in Austria.