On the Evolving VAT Concept of Fixed Establishment

Abstract

The relevance of the concept of fixed establishment (FE) for the EU VAT system can hardly be over-stated. Similarly to the concept of permanent establishment (PE) for income taxes purposes, the term plays a central role in VAT, and is consistently relied upon by the legislator, for both determining the place of supply of services, and establishing the right to deduct input VAT. Yet, despite its significance, the term is far from clear, and in recent years, the debate over its definition and scope, primarily in the context of our global digital economy, has intensified. This paper considers the evolution of the concept of FE in EU VAT and the recent CJEU decision in Titanium in the context of the Court’s previous case law. It argues that existing inconsistencies are a mere reflection of the difficulties in providing an adequate response to the significant challenges posed by the globalisation and digitalisation of the economy. It further contends that whilst providing an effective and definite response to these challenges will likely require legislative reform, in the meantime the Court has a significant role to play in limiting the distortive impact of those challenges. Until now, its case law has often provided short-term relief to these challenges – even if not necessarily in a consistent and principle-based manner – however, as the recent decision in Titanium demonstrates, dealing with them on a longer-term basis will unavoidably require not only making difficult choices, but re-assessing established jurisprudence.