Ownership without personnel does not justify a fixed establishment for foreign companies

The European Court of Justice (ECJ) ruled in its judgment (ECJ v. 03.06.2021, Case C-931/19 ) in the "Titanium" case, amongst other things, that a property rented out in a Member State does not constitute a fixed establishment if the owner of the property does not have its own personnel for the provision of services in connection with the rental.

Concept of fixed establishment: In its decision, the ECJ clarified, with reference to the wording of Art. 11 VAT Council Implementing Regulation (EU) no. 282/2011, that a fixed establishment is to be understood as any establishment (with the exception of the place of establishment of a business) that has a sufficient degree of permanence as well as a structure that allows to receive and to use the services that are provided for the own needs of this establishment in terms of human and technical resources. The concept of a fixed establishment under European law corresponds to the German concept of permanent establishment for VAT purposes (“Betriebsstätte”).

Therefore, the following applies: A fixed establishment is only justified if the prerequisites for the technical and human resources are met! A rented property where no own personnel is employed for the rental service cannot be defined as a fixed establishment. Also, assigning an external service provider (e.g. property management) cannot compensate the lack of own personnel. In this respect, foreign companies that own real estate in Germany and do not have their own personnel in Germany should review their invoicing and VAT declaration obligations. Up to now, the tax authorities have assumed a permanent establishment for VAT purposes in such cases.