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Provision of electronic services – Is the principal place of business at home or abroad?

If it is not possible to determine that the recipient of a service operates its business abroad then it should be assumed that the recipient’s location is in the home market.

A case that was decided by the Rhineland-Palatinate tax court (ruling from 25.6.2020, case reference: 6 K 1789/18) concerned a joint stock company (Aktiengesellschaft, AG) that had had an entry in the commercial register of the Local Court (Amtsgericht) of K since 1998 and that was active in the field of internet protocol television. The issue was whether or not the sales of the AG in connection with a website in Germany were liable to VAT.

End customers were able to use the electronic services of the website for free. Premium users were able to use further options in return for payment. Income also arose via advertising insertions on the website. This website was operated via servers in data centres outside of Germany. According to the AG, over the course of the relevant years of 2011 to 2015, the website had been operated by the company I AG with its registered office in the Seychelles. Its shares were held by a company based in Russia and the USA.

In the course of a tax investigation it was established that the sales from the operation of the website had to be allocated to the AG since there was no agreement between the AG and I AG. The contact details provided in the legal notice on the website were for the company I AG in the Seychelles.

The Rhineland-Palatinate tax court dismissed the claim with the above-mentioned ruling. VAT on the services had to be charged in Germany. According to ECJ case law, the place of a company’s business is where the essential decisions concerning the company’s general management are taken and where the functions of its central administration are exercised. Here, various factors have to be examined (e.g. statutory seat; place of central administration; place where general business policy is determined). A notionally established base in a form that is typical for a letterbox company does not define the place of business.

Please note: Permission was granted to lodge an appeal with the Federal Fiscal Court.

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