Romania: A new piece in the “VAT fixed establishment” puzzle

In early June, the Court of Justice of the European Union issued its ruling in the Titanium case (C‑931/19) on whether a company that leases immovable property may have a “fixed establishment” for VAT purposes in the jurisdiction where it owns said property.

The CJUE ruled that Titanium (domiciled and managed in Jersey) did not possess a VAT fixed establishment by merely owning and leasing real property (located in Austria) due to the fact that Titanium did not have its own staff to perform services relating to the management of its real estate assets located in Austria. 

According to the CJUE’s settled case-law, the concept of “fixed establishment” implies a minimum degree of stability derived from the permanent presence of both the human and technical resources necessary for the provision of given services. It thus requires a sufficient degree of permanence and a structure adequate, in terms of human and technical resources, to supply the services in question on an independent basis. Since Titanium did not have its own staff in Austria and the Austrian property manager it appointed to perform certain administrative tasks was not authorised to make key decisions regarding the lease, the local presence of Titanium was not sufficient to act independently and perform the leasing work. Thus, since Titanium didn’t deploy its own staff, its property in Austria did not constitute a fixed establishment.

The CJUE ruling is important in that it re-enforces the interpretation that a VAT fixed establishment may exist only in the presence of one’s own staff and resources in a foreign jurisdiction and, implicitly, that third party resources may not be relevant for this assessment. It is equally true that the CJUE’s ruling is based on the fact that Titanium reserved for itself all important decisions concerning the letting of the property, the Austrian agent being involved only in administrative tasks. Is it therefore reasonable to assume that, where key decisions regarding the business of a company are handed over to a subcontractor in a foreign jurisdiction, a VAT fixed establishment may be created even in the absence of said company’s resources and staff in the relevant jurisdiction? The answer would probably be different for every particular set of circumstances.

As stated before, the ruling in the Titanium case confirms that, in order for a VAT fixed establishment to be created, the taxable person must have its own material and human resources in a foreign jurisdiction. The resources of a third-party subcontractor may not always be relevant. We therefore cannot help but wonder how this ruling will impact other cases currently pending for judgment which deal with the concept of a VAT fixed establishment created by a subcontractor in a foreign jurisdiction. One particular example comes to mind, case C-333/20 Berlin Chemie, whose outcome is long awaited by the pharmaceuticals industry, as it may have significant consequences for businesses that operate internationally and have marketing and business support subsidiaries in other EU Member States.