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An analysis by Leitner Leitner, Taxand Austria
Hannes Gurtner, a partner in our Austrian firm, Leitner Leitner, has published an article discussing the issue of “permanent establishments” in tax law. Having a permanent establishment means that foreign sales taxes are often applied, and the company has to pay foreign taxes on services it buys until it’s refunded, which can lead to extra paperwork, costs, and risks for businesses.
To be considered a permanent establishment, the company’s operations in the foreign country need to have a stable and self-sufficient structure with the right personnel and equipment, even if the company doesn’t directly own the equipment.
However, a recent ECJ judgment of 29 June 2023, Case C-232/22 (Cabot Plastics Belgium), has ruled against this understanding, finding that a taxpayer has not yet set up a permanent establishment under the following conditions: hired a foreign contract processor to purchase raw materials, manufactured them, stored them temporarily, including managing the products, and made recommendations to optimize the production process, including technical control and evaluation.
This judgement and its implications are analysed in more detail here.
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