This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

VAT Place of Supply of Services

Establishment making or receiving the supply: Identifying the establishment making the supply

When a supplier has establishments in different countries, the place of belonging under UK law is determined by reference to the establishment most directly concerned with the supply.

The ‘most directly concerned’ test is not expressly provided for in EC VAT law, but the case of DFDS A/S confirmed our view that it is consistent with the purpose of the relevant EC provisions (what was Article 9 of the Sixth VAT Directive). Moreover, in Chinese Channel the High Court stated that Article 9 required a factual judgment as to whether the services were supplied from (or received at) a fixed establishment and that the ‘most directly concerned’ test was to be used in making that judgment.

It is important to interpret UK VAT law in the light of what was Article 9 of the Sixth VAT Directive (now Articles 44 and 45 of the Principal VAT Directive). European case law on this subject is limited but, in summary, the leading cases, Gunter Berkholz and DFDS A/S, when taken together, provide authority for treating services as made from (or received at) the business establishment unless the supply is actually made from (or received at) a fixed establishment.

In the case of Gunter Berkholz ECJ 168/84 the European Court of Justice considered the meaning of the equivalent terms in the Sixth Directive - the place where the supplier has established his business or has a fixed establishment from which the service is supplied.

The trader in this case operated gaming machines on ferry boats plying between Germany and Denmark, and had their main place of business at an office in Hamburg. The machines were maintained intermittently on the ships by their staff, but there were no permanent staff on board. The appellant argued that supplies were made on the ferry boats as a fixed establishment.

The Court stated that the purpose of Article 9 was to avoid conflicts of jurisdiction between Member States which might result in double taxation or non-taxation. Thus a supplier belonged where the business was established unless that led to an irrational result for tax purposes, or created conflict with another Member State. It was possible in principle for a fixed establishment to exist on a ship, but only

  • if that establishment was of a certain minimum size, with both the human and technical resources necessary for the provision of the services permanently present there, and
  • if it was not appropriate to regard the services as supplied where the supplier had its main business establishment.

Neither of these conditions had been fulfilled in this case, so the services were supplied at Berkholz’s main office in Hamburg.

In DFDS A/S (ECJ C-260/95), a case concerning the Tour Operators’ Margin Scheme and the interpretation of the relevant legal provisions on establishment in what was Article 26 of then Sixth Directive and Article 5 of the VAT (Tour Operators) Order 1987, the Court concluded that where services have been provided by a tour operator from a fixed establishment in a Member State other than that where the business is established, the services are taxable in the Member State where that fixed establishment is located.

Together, these two cases provide authority for approaching the test as follows

  • the businesses’ headquarters or main seat is a primary point of reference
  • another establishment only becomes relevant if reference to the headquarters of the business produces an inappropriate or irrational result for tax purposes or creates conflict with another Member State
  • alternative establishments may only be considered if they are of a certain minimum size and both the human and technical resources necessary for the provision of the particular services are permanently present
  • the actual economic situation, (economic substance and reality as opposed to the contractual provisions) can be taken into account in determining the point of reference for tax purposes.