Last year, the European Court of Justice (ECJ) issued a key decision on the tax relevance of real estate leased from abroad, case ‘Titanium’ (C-931/19). In this context, the main issue was the interpretation of the term ‘fixed establishment’ in international tax law – specifically, the application of Article 44 of EU Directive 2006/112/EC in Austrian VAT law. In the case, the property owner had its corporate headquarters on the Channel Island of Jersey, and the property itself was located in Vienna, Austria.
The company Titanium Ltd. (“Titanium”), with its registered office and management in Jersey, leased its property in Austria to two Austrian entrepreneurs, with VAT liability on the invoices. Titanium did not maintain own personnel on site to perform the rental activities. Titanium only made business decisions, like strategic decisions on the establishment and termination of leases and their economic and legal conditions, implementation of investments and repairs, selection of service providers and commissioning of property management. Titanium had outsourced the complete accounting (accounting of rents and operating costs, bookkeeping and preparation of advance VAT returns and annual VAT returns, etc.) to a local austrian property management company. The property management company itself used its own premises and personnel for these activities.
In the leading decision, the court confirmed Titanium’s legal opinion that – in this constellation – there was no ‘fixed establishment’ under Austrian VAT law. Titanium was therefore allowed to issue invoices without showing VAT. Subsequently, the tenant was considered to be the debtor of the VAT after reverse charge procedure.
According to the legal definition in Austrian tax law, a fixed establishment requires a permanent structure. This means, that a fixed establishment must, in terms of its personnel and technical equipment, ‘permit an autonomous provision of services or the receipt of services’ (Art. 11 MwStVO – Austrian VAT Regulation). Regarding the wording of the norm, both personnel and technical resources must be available for the establishment of a fixed establishment. The provision in turn specifies the application of Article 44 of EU Directive 2006/112/EC, which is why the ECJ addressed the matter here in the first place.
In the explanation of the ruling, the ECJ states that – if the entity does not have its own staff – it cannot be subsumed under the term ‘fixed establishment’. This applies equally to both active fixed establishments and passive fixed establishments. In the opinion of the ECJ, a fixed establishment therefore requires both its own personnel and its own technical equipment. Both requirements must be met cumulatively. If one element is missing, a fixed establishment cannot be assumed.
With regard to the legal source being an EU Regulation, the decision has implications for the entire EU area.
Interestingly, in the past, some German tax courts had ruled that wind turbines where the operator does not have its own staff working on site at the wind turbines can also be regarded as fixed establishments (in particular FG Münster, judgment dated September 5, 2013 – 5 K 1768/10 U). The courts based their decision on the fact that there is a lack of personell but this is compensated for by above-average technical equipment.