CJEU: Lack of own employees means no permanent establishment

CJEU: Lack of own employees means no fixed establishment

Ilona Twardowska, Tax Specialist, Crowe
CJEU: Lack of own employees means no permanent establishment
The Court of Justice of the European Union (CJEU), in its judgment of 3 June 2021 in the Titanium Ltd case (reference C-931/19), decided that the concept of 'fixed establishment' requires the permanent presence of the human and technical resources necessary to provide certain services.

In the case under analysis, the taxpayer lets a property in a country other than the place of their registered seat. They do not have their own staff to provide services relating to the letting. Instead, he uses services of a local business which acts as an intermediary in dealing with service providers and suppliers, invoicing rent and other costs and maintaining business registers and data necessary for filing VAT returns. According to the taxpayer, he does not have a fixed establishment in the country where the property is located.

The case was finally brought before the ECJ, which in its ruling referred to a number of judgments which show that there can be no question of having a fixed establishment in a situation where the taxpayer does not have his own staff in a given country. According to the court, the lack of human and technical resources unambiguously determines the lack of a fixed establishment, and the very use of the staff of another enterprise is not sufficient.

The discussed judgment is also very important for Polish taxpayers. Recently, tax authorities have presented a restrictive approach where in similar factual circumstances they conclude that the fact of using the staff of another entrepreneur is sufficient to consider that the taxpayer has a fixed establishment in Poland. This interpretation was confirmed by the Supreme Administrative Court, inter alia, in its ruling of 26 February 2020 (case no. I FSK 1313/17).

On the other hand, ECJ judgments clearly assume that in such cases taxpayers do not have a fixed establishment and do not have to pay VAT abroad.

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Agata Nie┼╝ychowska
Agata Nie┼╝ychowska
Tax Director, Partner