Permanent Establishments in Value Added Tax

Nowadays, more than 160 jurisdictions levy a VAT/GST. Cross-border trade in services is ever-increasing. Businesses, legislatures and tax authorities thus face new challenges in the area of VAT/GST, e.g. the risk of double (non-)taxation and loss of tax revenues by aggressive tax planning.

The existing academic research on the legal consequences connected with permanent establishments in international income tax law is immense. In the economically increasingly important field of VAT/GST, the role of permanent establishments is, however, comparatively unexplored. This book aims at identifying the role and functions of permanent establishments for VAT/GST purposes, by taking into account the existing EU VAT system and the international standard stipulated in the OECD International VAT/GST Guidelines.

Similarly to income tax law, also in the area of VAT/GST, permanent establishments primarily serve as a tool to allocate taxing rights between states, particularly in the area of B2B services. The EU legislature and the ECJ at the EU level as well as the OECD on an international level have recently begun to put more focus on the function of business establishments in VAT/GST law. The EU system does, however, not yet build on a coherent concept and still follows the more traditional “direct use method”, which involves tax planning opportunities for multinationals. The solution proposed by the OECD (“the recharge method”) has not found a comprehensive equivalent in the current EU system so far. Legal uncertainty, double taxation and non-taxation are the potential results. This is where this book steps in by analysing the concept of business establishments and the treatment of supply of services between such establishments for purposes of VAT/GST law in the light of the existing legal and tax policy framework.