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Constructing a VAT permanent establishment

In this article the term VAT permanent establishment will be explained, based on case law of the European Court of Justice (CJEU). Next you will find an example of the consequences in practice in an UK case[1] that was decided recently. Determining whether there is a permanent establishment for VAT is important for determining who is liable for VAT in relation to the service provided, the supplier or the receiver of the service.

In various rulings the CJEU has provided explanations regarding a VAT permanent establishment[2]. Among others it said that an establishment should have a certain minimum size and the human and technical resources necessary for the provision of the services should be permanently present. Later the CJEU mitigated ‘permanently present’: a permanent establishment should have a sufficient degree of permanence. The criteria should add to an establishment that can supply the services[3] in question independent of the “main” place of establishment of the supplier in another state.

Recent UK case law

The UK case regards a supplier of constructions services, established outside the UK. During the buildings works, the supplier used an office of the client on/near the construction site in the UK. From that office he arranged he opened accounts with local suppliers, ordered materials for the works and discussed and agreed the progress and details of the works for about half a year. The invoicing and payment of suppliers and workers was organised outside the UK at the place where the supplier was established.

The judges indicated that human and technical resources were sufficient for a permanent establishment. The fact that the invoicing and payment was done outside the UK, did not lead to a different conclusion since it was not necessary for the supply of the building service itself at the time the work was done.

However, the judges decided that the degree of permanence was too low, so there was no VAT permanent establishment that could supply services. The only activity of the supplier in UK was this particular building work which was likely to last about half a year. Despite it was pursued there were no other contracts or activities of the supplier in the UK, which could have been indicative for a higher degree of permanence (and could have led to another result).

The consequence in this particular case was that the UK VAT the supplier invoiced for the construction services was incorrect [4] since there was no VAT permanent establishment. In the end the result was that the customer had to bleed for this mistake and on balance had to pay(!) the VAT amount for the supplied services.

So this case shows the importance of determining whether there is a VAT permanent establishment and whether the (input) invoices are correct. If you want to avoid VAT risks of course.


[1] TC03689 Muster Inns Ltd.

[2] In the council regulation Nr. 282/2011 of 2011 a definition for VAT permanent establishments is included. This definition is in line with the earlier case law of the CJEU that was based on the Sixth Directive, the predecessor of the current VAT Directive. Please note that the judges did not use this definition (the articles of the VAT Directive for which this definition is valid are specifically mentioned in the council regulation).

[3] This article regards a VAT permanent establishment for providing services. For a VAT permanent establishment for receiving services, we refer to our article ‘A VAT permanent establishment for receiving services, what are the conditions?’.

[4] Possibly the supplier did not pay this VAT to the tax authorities.

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