Titanium – The CJEU decides that a leased property did not constitute a permanent establishment
In Titanium Ltd v Finanzamt Österreich (Case C-931/19), the Court of Justice of the European Union (CJEU) confirmed that when a property was rented in Austria, but the owner did not have staff in Austria to manage the rental, this did not create a permanent establishment for VAT purposes.
Titanium Ltd (Titanium) was a property and asset management company with its registered office and management office in Jersey. In fiscal years 2009-10, the company leased real estate it owned in Vienna, which was subject to tax, to two Austrian natural persons. It was Titanium’s only property in Austria and it appointed an Austrian agent to manage the property. The agent, a property management company, was responsible for billing rents and operating costs, as well as preparing VAT return data. Titanium retained the power to enter into and terminate leases, to decide the terms of leases and how repairs were financed.
Although the property is subject to tax, Titanium did not pay VAT on the rental in Austria on the grounds that it was not permanently established in the country. The Austrian tax authorities considered that a leased property could constitute a permanent establishment and determined that Titanium was liable for VAT for the fiscal years 2009-10.
Titanium appealed the Austrian authority’s decision to the Austrian Federal Finance Court, saying it should not be considered permanently established in the country simply because it owned and leased real estate there. The Court stayed the ruling in order to send back to the CJEU the question of whether the passive rental of real estate without human resources in Austria could constitute a “permanent establishment”.
The CJEU considered that the mere fact of owning and renting real estate in a country was not sufficient to create a permanent establishment within the meaning of Articles 43 to 45 of the VAT Directive. In his view, the “fixed establishment” required a certain degree of permanence and structure, both in terms of staff and technical resources to provide services independently. Titanium, having no staff in Austria, had to rely on an agent to perform some essential rental activities. The CJEU ruled that Titanium did not have a sufficiently large local presence to be able to carry out rental activities without the assistance of the agent.
Why is this important: Current HMRC Tips on the permanent establishment states that when a foreign company owns property in the UK that it rents out to tenants and to the company “appoints a British agent… to carry out his activity, this creates a permanent establishment in the United Kingdom“Although the CJEU rulings are no longer automatically part of UK law, it will be interesting to see if this ruling leads the HMRC to change its direction.
The judgment can be viewed here.