The CJEU determines when the letting of property is considered a fixed establishment

With a Judgment of 3 June 2021, the Court of Justice of the European Union (“CJEU”) determined when immovable property rented in a Member State should be designated as a “fixed establishment” within the meaning of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008 (“VAT Directive”) and Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112 (“Regulation No 282/2011”). This reference for a preliminary ruling has been sent by the Austrian Federal Finance Court.

The reference has been made in the course of proceedings between Titanium Ltd., established in Jersey, and the Austrian tax authorities concerning the assessment of value added tax (“VAT”) on rental income originating in immovable property situated in Austria, for tax years 2009 and 2010.

Titanium Ltd. is a company whose registered office and administrative seat are located in Jersey and whose corporate purpose is property management, asset management and the management of housing and accommodation. During the tax years 2009 and 2010, this company let, subject to tax, a property which it owned in Vienna (Austria) to two Austrian traders. In order to carry out those transactions, which were Titanium’s only activities in Austria, Titanium appointed an Austrian real estate management company to act as intermediary between the service providers and suppliers, to invoice rental payments and operating costs, to maintain business records and to prepare the VAT declaration data. Those services were carried out by the intermediary in premises which were not the property belonging to Titanium. However, Titanium retained the decision-making power to enter into and terminate leases, to determine the economic and legal conditions of the tenancy agreements, to make investments and repairs and to organise their financing, to choose third parties intended to provide other upstream services and, finally, to select, appoint and oversee the real estate management company itself.

Although Titanium had taken the view that it was not liable to pay VAT in respect of its activity of letting the property, on the ground that it did not have a permanent establishment in Austria, the tax authority’s view was that a property which was rented out constituted such a permanent establishment and, consequently, the tax authority determined an amount of VAT chargeable to Titanium for the tax years 2009 and 2010. The arguments of the tax authorities are based on national legislation (Guidelines on Turnover Tax 2000), in accordance with which a trader who owns immovable property in Austria and lets this property, subject to tax, must be treated as a local trader and that the person to whom the services are supplied is not liable to pay the tax on that transaction. Accordingly, there is always a permanent establishment where immovable property is let. These Guidelines are based on a provision of the Austrian Turnover Tax Act, namely Art. 19, para. 1, which provides that the tax liability is transferred to the person to whom the services are supplied if the trader does not carry on its business in national territory or does not have a permanent establishment. According to the tax authority, this provision transposes not only Art. 196 of the VAT Directive, but also Art. 194. Titanium Ltd. appealed the tax authority’s decision and legal proceedings were initiated between the two parties in Austria.

In the course of the proceedings, the Federal Finance Court decided to stay them and to refer the following question to the CJEU for a preliminary ruling:

‘Is the concept of “fixed establishment” to be interpreted as meaning that the existence of human and technical resources is always necessary and therefore that the service provider’s own staff must be present at the establishment, or can – in the specific case of the letting, subject to tax, of a property situated in national territory, which constitutes only a passive tolerance of an act or situation whereby the supplier authorises a third party to do something that the latter could not do without such authorisation – that property, even without human resources, be regarded as a “fixed establishment”?’

In accordance with the applicable legislation, the place of supply of services to a non-taxable person shall be the place where the supplier has established their business. However, if those services are provided from a fixed establishment of the supplier located in a place other than the place where they have established their business, the place of supply of those services must 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 must be the place where the supplier has their permanent address or where they usually reside (Art. 45 VAT Directive).

Pursuant to Art. 193 VAT Directive, VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Arts. 194 to 199 and Art. 202. Pursuant to Art. 194 VAT Directive, where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States may provide that the person liable for payment of VAT is the person to whom the goods or services are supplied.

Due to the many different concepts used in the VAT Directive that are not defined in it, the Council of the EU adopted Regulation No 282/2011. The purpose of this regulation is to ensure the uniform application of the rules for determining the place of taxable transaction by clarifying concepts such as the place where a taxable person has established their business, fixed establishment, permanent address and the place where the person usually resides.

Art. 11 of Regulation No 282/2011 establishes that a “fixed establishment” is any establishment, other than the place of establishment of a business, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs.

Basing its arguments on the cited legislation and the Court’s settled case-law, the CJEU determined that the concept of ‘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 given services. It thus requires a sufficient degree of permanence and a structure adequate, in terms of human and technical resources, to supply the services in question on an independent basis (Judgment of 28 June 2007, Planzer Luxembourg, C‑73/06, EU:C:2007:397, para. 54 and the case-law cited). In particular, a structure without its own staff cannot fall within the scope of the concept of a ‘fixed establishment’ (see, to that effect, Judgment of 17 July 1997, ARO Lease, C‑190/95, EU:C:1997:374, para. 19). That case-law is supported by Art. 11 of Implementing Regulation No 282/2011, pursuant to which a fixed establishment is characterised, inter alia, by a suitable structure „in terms of human and technical resources“.

In the present case, Titanium Ltd. does not have any staff of its own in Austria and the persons responsible for certain management tasks were contractually appointed by that company, which reserved for itself all important decisions concerning the letting of the property in question. A property which does not have any human resource enabling it to act independently clearly does not satisfy the criteria established by the case-law to be characterised as a fixed establishment within the meaning of the VAT Directive.

For this reason, the CJEU establishes that a property which is let in a Member State in the circumstance where the owner of that property does not have their own staff to perform services relating to the letting does not constitute a fixed establishment within the meaning of Arts. 43, 44 and 45 of the VAT Directive.