Summary of the Case „Titanium “(C-931/19)

Published on September 17, 2021

The ECJ clarified: renting out a property in Austria does not constitute a fixed establishment for a foreign lessor to the extent that a propriety management company is appointed with assistance services regarding the rental.

Generally, if the supply of services takes place between taxable persons (B2B- Business to Business), the place of supply of the service is the place where the customer has established his business.  Accordingly, renting out a property, located in Austria is subject to Austrian VAT and the lessor shall be liable for the payment of VAT.

However, when services are rendered by non-established service providers in the EU, a switch of the tax liability is possible. This switch is called “reverse charge- mechanism”, whereby the recipient of services becomes liable to pay VAT instead of the service provider. For the application of the reverse charge-regime, an essential preliminary question has to be cleared, namely whether the service provider is established in a Member State or not. The tax debt is transferred to the recipient of the service only if the trader does not carry on its business in the national territory.

In the case of "Titanium", the ECJ dealt with the question, whether there is a permanent establishment where the immovable property is let. In the particular case, a Jersey-based company (hereinafter referred to as Titanium), which operated in the property- and asset management sector, let, subject to tax, a property in Vienna to two Austrian traders. Furthermore, an Austrian property management firm was appointed by Titanium to handle diverse administrative services regarding the rental such as invoicing rental payments- and operating costs and preparing the VAT declaration data.

In the case in question, Titanium took the view, that it was not liable to pay VAT in respect of its letting activity based on the reverse charge regime. Contrary to this, the Austrian tax authority held the opinion that the rented property should be considered as a permanent establishment for Titanium, and therefore the conditions to apply the reverse charge had been not fulfilled. Thus, Titanium should have been liable for VAT in Austria.

Titanium disagreed and the case ended up at the Austrian Federal Finance Court. In those circumstances, the Federal Finance Court decided to stay the proceedings and to refer the question to the ECJ for a preliminary ruling. The Austrian Federal Court asked in essence, whether a property which is let in a Member State constitutes a fixed establishment in the circumstances where the letter of that property does not have his or her own stuff to perform services relating to the letting.

The Court confirmed that the concept of ‘fixed establishment’ presupposes that the supplier must actually have its own staff and technical resources at the permanent establishment. According to Article 11 of the implementing regulation (EU) No 282, “a fixed establishment is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs. “ On those grounds, the Court thereby ruled that the criteria for a fixed establishment were not met in the case at hand, since using the staff of another appointed trader (property management firm) is insufficient for such a concept to be established. Therefore, the rental income in the particular case is subject to the reverse charge procedure and the Austrian lessees shall owe the VAT, not Titanium.

Consequently, as long as the lessor does not have any staff- and technical equipment at his own in Austria to provide the services related to the rental on an independent basis, simply letting out a property here does not constitute a permanent establishment thus the benefits of the reverse charge regime can be enjoyed by the lessor.