EU Court of Justice, Case C-931/19 – Letting a property in a Member State does not give rise to a fixed establishment for VAT purpose if the owner does not have his or her own staff to perform services relating to the letting.

In Case C-931/19 of 3 June 2021, the EU Court of Justice provided clarifications with respect to the scope of the concept of “fixed establishment” for the purpose of the application of the VAT provisions concerning the place of supply of services.

The concept of “fixed establishment” defines the place where the supply of services is relevant for VAT purposes.

According to Art. 44 of the Council Directive 2006/112/EC (the “VAT Directive”), in case of services rendered to taxable persons acting as such, “…the place of supply of services shall be the place where the person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall 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 shall be the place where the taxable person who receives such services has his permanent address or usually resides”.

Art. 11 of the Implementing Regulation n. 282/2011 (not applicable ratione temporis to the main proceeding) clarifies that for the purpose of the application of Art. 44 of the VAT Directive, a “fixed establishment” shall be any establishment characterized 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.

The main proceeding deals with the possibility for a property rented out in a Member Country to constitute a fixed establishment. The owner of the property was a company running a real estate activity (i.e., property management, asset management and management of housing and accommodation), who owned and rented out the property to taxable persons without performing any service related to the letting and without having any human or technical resources.

The EC Court of Justice stated that the existence of a “fixed establishment” requires a minimum degree of stability deriving from the permanent presence of both the human and technical resources necessary for the provision of services. The mere owning by a taxable person of a real estate property to be let, without having the same person any staff to perform services relating to the letting does not constitute a fixed establishment.

As regards Italy, in the past the Italian Tax Authority clarified that the mere possession of a property in Italy to be leased does not give rise to a permanent establishment for VAT purposes since the existence of a permanent establishment requires the effective establishment of a structure in Italy which is autonomous and functional with respect to the foreign company (ruling dated 13/12/1989, n. 460196).

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