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Titanium case and fixed establishments for VAT purposes: Has anything really changed?

Fernando Matesanz of Spanish VAT Services discusses the controversial issue of fixed establishments for VAT purposes in the ECJ Titanium case.

On June 3 2021, the European Court of Justice (ECJ) issued its judgment in case C-931/19 (Titanium Ltd) concerning the controversial issue of fixed establishments for VAT.

In the referred case, an entity named Titanium Limited, with its place of business in Jersey, rented a property located in Austria to two Austrian entrepreneurs. Since Titanium did not have its place of business in Austria, it decided to delegate the management of the lease of the property to an Austrian property management company. This company provided its services from its own offices and with its own staff. 

Titanium always considered that it had the status of a non-established entity in Austria and, therefore, did not charge VAT on its invoices by application of the reverse charge mechanism. 

However, in view of the Austrian authorities, the fact that Titanium owned a rented property in Austria constituted a fixed establishment, which meant that Titanium was a taxable person for VAT in respect of the supply of rental services and was therefore obliged to charge VAT on the invoices issued to the lessees. Since Titanium disagreed with the Austrian tax authorities' position, the case was eventually referred to the ECJ.

European Court of Justice opinion

The ECJ was asked to issue its judgment on whether a property which is let constitutes a fixed establishment in the circumstance where the owner of that property does not have its own staff to provide services relating to the letting.

The ECJ decided that Titanium did not have a fixed establishment in Austria. The ECJ pointed out that a fixed establishment requires both human and technical resources. Moreover, both requirements must be fulfilled simultaneously. According to the ECJ's reasoning, in the absence of either of these two elements, the existence of a permanent establishment must be ruled out. 

The ECJ's decision is logical in accordance with the provisions of Article 11 of Regulation 282/2011 (VAT Regulation). Article 11 states that a fixed establishment means any establishment, other than the place of business, which is characterised by a sufficient degree of permanence and an adequate structure in terms of human and technical resources to enable it to receive and use the services supplied for the needs of that establishment.

Although this definition refers to the concept of establishment for the purposes of determining the place where the taxable event takes place and not for the purposes of determining who is the taxable person in a certain transaction, we consider that it must also be taken into account for the latter purposes. This is so because, firstly both concepts are interrelated and, secondly, because the VAT legislation does not provide any further definition of what is to be considered a fixed establishment other than that set out in the aforementioned Article 11 of the VAT Regulation. 

Spanish v. EU legislation

The judgment may have practical implications in Spain since the definition of fixed establishment provided by the Spanish regulations does not seem to be in line with the definition given by EU legislation.

According to Article 84 of the Spanish VAT Law, it may be sufficient that only technical or human means (not both simultaneously) exist for a given taxable person to be considered established for VAT purposes. 

This discrepancy between, on the one hand, EU law and ECJ doctrine and, on the other hand, Spanish law may become a controversial issue especially for taxable persons carrying out activities in different EU countries using assets and technical resources in those countries.

Therefore, it would be advisable to align Spanish legislation with EU legislation and, in this way, to clearly establish that the requirements for having a fixed establishment (technical and human resources) are cumulative, so that simply having one of them will not be sufficient to consider an entrepreneur to be an established taxable person.

Notwithstanding all of the above, it is important to note the ECJ has issued its decision only in relation to the definition of fixed establishment in the case of a leased property in which the lessor does not have the human resources to carry out his activity and for this purpose hires the services of an intermediary who will assist him in the provision of this services.

This decision should not apply to situations other than those raised in the referred case. Therefore, while this ECJ ruling is interesting and should be taken into consideration, it does not change the current understanding of what is to be understood as a fixed establishment for VAT purposes. As usual, each individual case will have to continue to be considered on a case-by-case basis.

Fernando Matesanz
Managing director, Spanish VAT Services 

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