VAT and Fixed Establishment

The Sixth Value Added Tax (VAT) Directive introduced the concept of the fixed establishment in VAT. For a long time, the criteria for classifying activities as a fixed establishment seemed relatively clear. However the introduction in 2011 of the VAT Implementing Regulation3 (hereinafter the ‘Implementing Regulation’) changed this situation by providing various definitions of the concept. Since then, new European case law on the fixed establishment has arisen, including the judgments in the cases of Welmory, Skandia America Corporation (Skandia) and Le Crédit Lyonnais (LCL). Section 2 of this article first examines the purpose of the fixed establishment and second, analyses the criteria applying in respect of the fixed establishment and the definitions laid down in the Implementing Regulation. Section 3 discusses the judgment in Welmory, while also examining the relationship between the passive and the active fixed establishment. Section 4 looks at the relationship between the head office (also referred to as the ‘main business establishment’) and the fixed establishment, with specific reference to the Skandia case. This section also provides an overview of how the various Member States have chosen to apply the judgment in Skandia. Section 5 considers the LCL case and specifically the right of the head office and the passive fixed establishment to deduct input VAT. Our conclusion is set out in section 6.

We should emphasize that this article takes account, in principle, only of European Union (EU) legislation and regulations on VAT, as well as European Court of Justice (ECJ) case law on the subject. Unless explicitly stated otherwise, therefore, no consideration is given to case law of the Member States or local VAT legislation.