INSIGHT: Slovenia Guide on Fixed Establishment for VAT Purposes

This article will look at the Slovenian Financial Administration (SFA) stance on the topic of fixed establishment for the purposes of value-added tax (VAT), as provided through the Guide. The reader should bear in mind however that specific solutions that are given may be subject to different interpretation by the relevant tax authorities of other member states.

Fixed Establishment—Definition

The SFA first recalls that the fixed establishment is a concept of EU law, meaning that it has an autonomous interpretation as meant and as defined by the VAT Directive and the judicial practice of the Court of Justice of the European Union (CJEU), from which EU member states are not allowed to diverge.

In that regard, the place of supply of services is where the taxable recipient has established its business, as defined by Article 44 of the VAT Directive and the Slovenian Value Added Tax Act.

However, if the services are provided to a fixed establishment of the taxable person located in a place other than the place where it has established its business, the place of supply shall be the place where that fixed establishment is located.

The need to define the existence of a fixed establishment becomes apparent when the recipient’s place of business and its fixed establishment are under different VAT jurisdictions. For the purpose of Article 44 of the VAT Directive, Article 11 of the VAT Implementation Regulation defines a fixed establishment as any establishment, apart from the place of establishment of a business, “characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources for it to receive and use the services supplied to it for its own needs.”

The Guide summarizes the relevant criteria for defining a fixed establishment as follows: (1) sufficient degree of permanence, (2) suitable human and technical resources, and (3) the ability to receive and use the services (fixed establishment as recipient of the service), or the ability to provide the supplied services (fixed establishment as supplier of the service).

As a general rule, the relevant criteria have to be established during the time the services are supplied and objective evidence has to be presented to the tax authorities in case of an audit.

The SFA further states that a sufficient degree of permanence is reached if the fixed establishment has under its control human and technical resources which are maintained and controlled on a permanent basis. Therefore, employment and lease contracts are required with regard to the human and technical resources, based on which they are at the taxable person’s disposal as if they were its own, and which also cannot be terminated on short notice (Case C–605/12, Welmory, para. 62).

The Guide also summarizes the main CJEU cases referring to this topic—Berkholz, DFDS , ARO Lease , Planzer , and Welmory.

Determining the Place of Supply in Case of a Fixed Establishment

The SFA states that the supplier of a service is obliged to assess whether its service is performed to a fixed establishment of the taxable recipient who will use the service for its needs.

Considering the above criteria, the Guide recognizes the difficulty in determining the place of supply of services, if the service provider does not know who the direct beneficiary of the services will be, especially when the relevant services are provided to different VAT jurisdictions.

In order to determine the place of supply correctly, the SFA therefore proposes that the service provider should obtain at least the following information from the service recipient:

• Which types of transactions does the recipient perform in Slovenia?
• Does the recipient have in Slovenia its own or rented warehouse, business premises, own or hired employees and other technical resources?
• Does a fixed establishment exist in Slovenia within the meaning of Article 11 of the VAT Implementing Regulation?
• Will this fixed establishment be the recipient and beneficiary of the services provided?
• Who pays for the service (the taxable person or his fixed establishment)?
• The VAT identification number given to the recipient in Slovenia.

If a Slovenian taxable person performs a service to a fixed establishment which the taxable recipient has in Slovenia, Slovenian VAT has to be charged. The fixed establishment must pay the tax based on the reverse charge mechanism.

Requirement for a Fixed Establishment to be Identified for VAT Purposes in Slovenia

The question of a fixed establishment also raises questions regarding VAT registration. All the general rules apply in this regard. A fixed establishment of a foreign taxable person therefore has to be VAT registered in Slovenia in cases when it performs activities such as:

• intra-Union acquisitions of goods in Slovenia;
• receiving services provided by taxable persons established outside of Slovenia, for which the fixed establishment is designated as the person liable to pay the VAT;
• supplying goods or providing services in Slovenian territory;
• providing services in the territory of another EU member state, for which the person liable to pay the VAT is the recipient.

Planning Points

• A foreign company with presence in Slovenia needs to assess carefully whether a fixed establishment is present in Slovenia and VAT registration is needed. If a fixed establishment exists, the company should notify the service providers about that fact and hold objective evidence in order to support the VAT treatment.
• The Slovenian service provider has to be careful in assessing whether the foreign business entity to which it is providing services represents a fixed establishment in Slovenia or not, taking into account all the relevant circumstances surrounding the recipient’s business.

Blaž Pate is a Partner and Mihael Pojbič is an Assistant with LeitnerLeitner.

The authors may be contacted at: blaz.pate@leitnerleitner.com; mihael.pojbic@leitnerleitner.com

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.