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Worth remembering

Many people are unaware that the concept of permanent establishment from a VAT perspective follows an atypical logic which should not be confused with the concept in direct corporate tax. If misinterpreted, this notion can have very serious consequences.

If your company has a minimum infrastructure (warehouse, office, etc.) or staff (e.g. sales staff) abroad, it can quickly be confronted with the tricky issue of a possible "permanent establishment" in the country in question. Some tax authorities (Spain, France, Poland, etc.) no longer hesitate to reinterpret this notion as they see fit...

For example, does the simple fact of letting a building abroad constitute a permanent establishment for VAT purposes?

This was the question submitted to the Court of Justice.

The response of the Court of Justice : Permanent establishment or not?

The case ended up before the Court of Justice, which had to resolve the following Gordian knot: Does letting a building abroad constitute a permanent establishment for VAT purposes?

The answer given by the Court was clear: NO.

And it was the Court's turn to cite some key elements of its case law, to be taken into account, in order to determine the existence of a permanent establishment for VAT purposes:

  • A minimum consistency, through the permanent assembly of human and technical resources necessary for the provision of specific services. This implies a sufficient degree of permanence and a structure capable of making the services in question possible in an autonomous manner.

      Or again :

  • An appropriate structure "in terms of human and technical resources".

A building that does not have any human resources capable of acting autonomously clearly does not meet the above-mentioned criteria to be qualified as a permanent establishment.

What can we learn from this ruling?

Does your company's presence abroad constitute a permanent establishment for VAT purposes? As in this case, the answer is not always simple.

The notion of permanent establishment for VAT purposes is defined by the VAT Directive and interpreted by Community case law, but it is also defined by the local tax authorities. However, it is clear that the latter sometimes have a broad and vague perception of this concept.

Many companies thus find themselves in a "grey area", which is not very reassuring and is generally a source of conflict with the local tax authorities. And as this case shows, no European country seems to be spared!