In Titanium Ltd v Finanzamt Österreich (Case C-931/19), the Court of Justice of the European Union (CJEU) confirmed that where a property was let in Austria, but the landlord did not have staff in Austria to manage the letting, this did not create a fixed establishment for VAT purposes.
Titanium Ltd (Titanium) was a property and asset management company that had its registered and management offices in Jersey. During the 2009-10 tax years, the company let a property it owned in Vienna, which was subject to tax, to two Austrian individuals. This was Titanium's only property in Austria and it appointed an Austrian agent to manage the property. The agent, a real estate management company, was responsible for invoicing rental payments and operation costs, and for the preparation of VAT declaration data. Titanium retained the power to enter into and terminate leases, and to decide on the terms of tenancy agreements, and how repairs were financed.
Despite the property being subject to tax, Titanium did not pay VAT in respect of the letting in Austria on the basis that it was not permanently established in the country. The Austrian tax authority considered that a let property could constitute a fixed establishment and determined that Titanium was liable to account for VAT in respect of the 2009-10 tax years.
Titanium appealed against the Austrian authority's decision to the Austrian Federal Finance court, claiming that it should not be treated as permanently established in the country simply because it owned and let an immovable property there. The Court stayed proceedings in order to refer to the CJEU the question of whether the passive letting of a property without human resources in Austria could constitute a "fixed establishment".
The CJEU was of the view that merely owning and leasing a property in a country was not sufficient to create a fixed establishment within the meaning of Articles 43 to 45 of the VAT Directive. In its view, "fixed establishment" required a degree of permanence and structure, both in terms of staff and technical resources to supply services independently. Titanium, having no staff in Austria, had to rely on an agent to carry out some essential letting activities. The CJEU did not consider Titanium had a significant enough local presence to be able to carry out letting activities without the agent's assistance.
Why it matters: Current HMRC guidance on fixed establishment states that where an overseas company owns a property in the UK which it leases to tenants and the company "appoints a UK agent… to carry on its business, this creates a fixed establishment in the UK". Although judgments of the CJEU no longer automatically form part of UK law, it will be interesting to see whether this judgment causes HMRC to change its guidance.
The judgment can be viewed here.