When it comes to VAT
Important decision - foreign companies in the Netherlands – requirement to appoint a fiscal representative – Dutch Court of Appeal
This case deals, in essence, with the question whether or not the Netherlands can require foreign companies to appoint a fiscal representative in the Netherlands.
The main issue in this case is whether the Netherlands is allowed to require foreign companies to appoint a fiscal representative for certain activities in the Netherlands. This case concerns the application of the Dutch VAT zero rate for supplies of excise goods stored in a bonded warehouse. The Dutch tax authorities denied the zero rate and imposed VAT assessments, on account of the supplier failing to appoint a fiscal representative.
The judgment examines four distinct legal issues, each of which holds significant individual importance.
The company was incorporated under Dutch law and registered with the Dutch Chamber of Commerce. However, its sole director lived abroad (Spain) and the company had no employees.
The Court held that for VAT purposes the place of establishment is determined by the place where central management decisions are taken. The fact that the company had a statutory seat in the Netherlands, rented office space, held meetings there and conducted commercial activities in the Netherlands was not decisive.
Because the company’s central management was exercised abroad by the director, the Court concluded that the company was not established in the Netherlands for VAT purposes.
The taxpayer argued that it effectively operated through the infrastructure of a Dutch logistics service provider, including storage facilities and administrative services.
The Court rejected this argument. A fixed establishment requires a sufficiently permanent structure with human and technical resources available to the taxpayer as if they were its own.
Although the company used the facilities of a logistics provider, those resources remained under the control and responsibility of that service provider. The taxpayer did not have its own staff or technical resources in the Netherlands.
Therefore, the Court concluded that no fixed establishment existed in the Netherlands.
Dutch law requires non-resident businesses without a fixed establishment (this applies to the taxpayer in question) to appoint a fiscal representative in order to apply the VAT zero rate for certain transactions involving excise goods.
The Court held that this requirement is contrary to EU law in the circumstances of this case.
The Court reasoned that:
Since the taxpayer was established in a country that has such mutual assistance arrangements with the Netherlands, the Court ruled that the obligation to appoint a fiscal representative cannot be enforced.
The Court also addressed whether failure to comply with formal requirements could justify denying the VAT zero rate.
It held that EU VAT law requires substance to prevail over purely formal requirements. Where the material conditions for the VAT zero rate are satisfied, the exemption cannot be denied merely because a taxpayer did not comply with certain formal obligations.
In this case the tax authorities already had sufficient evidence that the goods remained under the excise suspension regime in the bonded warehouse. Therefore, the absence of a fiscal representative or certain written statements could not justify refusing the zero rate, because those requirements did not affect the proof that the substantive conditions were met.
The Court of Appeal ruled in favour of the taxpayer and:
It is clear that the outcome of this case carries significant implications for businesses engaged in the trade of excise goods, those holding import deferment licenses, or operating VAT warehouses. According to the Court of Appeal’s findings, companies are no longer obligated to appoint a fiscal representative. However, due to the importance of this case, we anticipate the Dutch tax authorities will bring it before the Dutch Supreme Court. A decision from the Supreme Court is likely to take at least a year.
We would be pleased to discuss the outcome of this case with you in detail at your convenience.
If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com
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