The Austrian Ministry of Finance published guidance on the circumstances regarded as sufficient to establish a permanent establishment for an Italian general contractor in Austria.
In the case at hand, an Italian general contractor had entered into an agreement with its Austrian subsidiary for providing construction and installation services pursuant to article 5(2)(g) of the double taxation treaty concluded between Austria and Italy ("DTT AT/IT"). Such services were subcontracted to an Italian subsidiary of the general contractor, which performed the services for 22 months at the premises of the Austrian company using its own employees. It was certain that the activities of the subcontractor were sufficient to establish a permanent establishment in Austria. What was not evident at first glance was that under certain circumstances a permanent establishment in Austria may also be constituted for the general contractor. This would have been the case if the general contractor had kept the power to factually dispose of the construction site. The latter requirement would have been the case if it had obtained legal ownership of the site, controlled access and usage of the site and had the overall responsibility during the construction period. In such cases, the general contractor is present at the construction site because of its supervisory activities and regarded as performing activities of the building site or construction or installation project.
In a usual setting the general contractor will have the overall responsibility for the project performed at the construction site, as generally it is the only contracting party of the recipient. If, however, the overall functions are delegated to the subcontractor in a way that the general contractor does not have overall responsibility, it is to be assumed that the site will no longer be at the disposal of the general contractor. In such cases, it has to be determined which other functions are performed by the general contractor and defined whether its involvement is based on significant economic grounds in order to ultimately assess whether a permanent establishment may be constituted.
The Ministry of Finance further noted that even if the general contractor had a permanent establishment in Austria, only profits attributed to such permanent establishment may be taxed in Austria. Therefore, if all functions related to the project in Austria were performed in Italy there would be no taxable profit in Austria.