Can a mooring point of a vessel be considered as a PE for VAT purposes? Judgment of the Economic-Administrative Court of October 23
The concept of Permanent Establishment (PE) for VAT is defined in the VAT Act through the article 69.Three, in its general concept as “any fixed place of business where entrepreneurs or professionals perform business or professional activities”. Under this definition and in accordance with the information requested and at the disposal of the National Tax Administration Office regarding an application for VAT refund borne by an entity not established in the Spanish VAT territory, this Tax Body considered that the requesting entity acted by means of a PE, as far as being the owner of a right of use, in said territory, of a mooring point for a vessel from which the activity of transfer the use of the vessel for chartering was developed. For this reason, the Tax Administration refused to refund the VAT, in view of the fact that the company did not comply with one of the requirements established in article 119 of the VAT Act as regard the VAT refund procedure for non-established VAT operators.
However, contrary to this opinion, the non-established entity filed an economic-administrative claim before the Economic-Administrative Court (TEAC), arguing that the mooring does not constitute the base of transactions from which the activity is carried out by the entity.
The Court considers that the fundamental question is to determine if it can be concluded from the elements accredited by the Administration that the entity has a PE and whether it is considered as an established taxpayer. For such purposes, the Court makes use of the extensive case-law of the European Court of Justice in this respect, in order to clearly establish which are the essential characteristics that a PE must have to be considered as such (cases-Law FCE Bank PLC, Berkholz, ARO Lease or DFDS, are some of the judgments used by the TEAC in this regard):
- Physical presence in a specific Member State.- A set of means is required to provide the services in a Member State other than the one where the main place of business is located.
- Permanence in time.- The organization of the means for the development of the business activity in such territory must have an aim of permanence.
- Effective development of an economic activity by the PE.- Independence in carrying out the activity with respect to the headquarters, that means to analyse if it develops an independent economic activity and if it can be considered an autonomous unit to the extent that it faces the economic risk of the activity.
- Minimum consistency with sufficient human and technical resources to provide the services.
To sum up, the characteristics that must be taken into account for the existence of a PE imply not only the existence of a fixed place, but the actual and proper development of an economic activity with human and technical means of permanence and, of course, with independence from the central headquarters.
In these circumstances, the TEAC determines that the mere existence of a mooring point for a vessel cannot lead to a PE for the entity, since it does not prove a minimum consistency of human and material means aimed to provide services. This criterion was also stated by the General Tax Directorate through the binding tax ruling of July 3rd, 2014, where the Tax Body considered that a mooring point located in the Spanish territory, in which a recreational vessel owned by a non-resident person is tied does not have the consideration of PE, since an economic activity is not carried out from it.
This notwithstanding, as it is recognized in both, the aforementioned consultation and by the Court, it is necessary to take into account the circumstances of each specific case since a vessel could constitute a PE if it is understood that all the economic activity developed is linked thereto, as would be the case, for example, if the lease of the vessel had a fixed port in Spain and all leasing activity was carried out from this country and to navigate in Spanish waters.
Attached is a copy, in Spanish, of the TEAC judgment with appeal number 04893/2011.