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CJEU: no fixed establishment for VAT purposes if a business does not have its own staff


by Maciej Woźnica

11 June 2021


The CJEU issued a judgment on 3 June 2021 in an Austrian case of Titanium (file no. C-931/19), in which it ruled on the existence of a fixed establishment. The CJEU’s ruling proved surprising and may be very important in terms of application of VAT regulations by Polish tax authorities and courts.


Subject of the ruling

The case concerned ‘Titanium’ – an entity established in Jersey, which owned a real property and rented it to two local enterprises. The rental was managed by a fully local real property management company. As Titanium’s staff was not directly engaged in Austria at all, the company concluded that it did not have a fixed establishment in Austria and, therefore, it did not have pay VAT on the rental income.


Austrian tax authorities concluded that rental of a real property automatically implied that a fixed establishment was triggered. As a consequence, the owner was obliged to pay VAT.


The appeal proceedings were initiated by the owner and were pending before the local financial court which decided to confirm with the CJEU whether the owner’s human resources had to be present on site for a fixed establishment to be triggered.


CJEU’s ruling

The CJEU ruled that if the owner did not have its own staff in the country where the rented property was located, the owner did not have a fixed establishment there, either.


What does it mean for taxpayers?

The CJEU’s ruling in the Titanium case is a novelty in CJEU’s case law. It was the first time when the CJEU had ruled unambiguously on the consequences of the absence of own staff for the existence of human and technical resources which are required for the existence of a fixed establishment for VAT purposes.


That ruling may be very important for the practice of Polish tax authorities. So far, they have based they rulings on much more vague conclusions included in the ruling in Welmory case of 16 October 2014 (file no.C-605/12) – they have held consistently that the appropriate human resources existed also when the human resources consisted exclusively of third-party service providers. In view of the judgment of 3 June 2021 it cannot be ruled out that changes in the case law may reach the same scale as those which took place after the Welmory case.

In practice, tax authorities may conclude that taxpayers that provide B2B services not being subject to special rules incorrectly determine the place of taxation of services provided to entities which do not have their own staff in Poland. The consequences will affect both the output tax accounting by the sellers and the correctness of VAT deduction by the buyers.


Taxpayers who have assumed so far, on the basis of the relevant case law, that they have a fixed establishment in Poland should consider revising the adopted model of VAT accounting.


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