Recent developments in the interpretation of the “power of disposal” as PE threshold

Recently, the Austrian Federal Tax Court (BFG) dealt in its decision (BFG 8/2/2024, RV/6100451/2018) with the requirements for the power of disposal triggering a permanent establishment.

Fact pattern

A German dentist treated inmates of Austrian prisons. The tax authority generally has a rather broad understanding of the power of disposal over a fixed place of business. Considering this, the threshold to trigger a permanent establishment in Austria is lower as compared to other countries. Also, in this case the tax authority followed its broad understanding of the power of disposal and assumed a permanent establishment of the German dentist at the Austrian prison.

More restrictive interpretation by the BFG

On the contrary, the BFG rejects such a broad interpretation in its recent decision on PE. Considering the special security measures and access restrictions of a prison, the BFG doubts whether a prison could qualify as PE. The BFG denies the power of disposal of the German dentist over the treatment rooms in the prison due to several reasons. The dentist did not have free access to the treatment rooms. He was only allowed to access the treatment rooms for scheduled periods and only accompanied by guards. Furthermore, the dentist was not able to prevent other people from using the treatment rooms as well. The BFG stipulated/decided that mere shared use does not constitute the power of disposal over the treatment rooms and therefore a permanent establishment was not created.

Conclusion of the Austrian Ministry of Finance (BMF)

However, the BMF considers the legal position of the dentist being able to provide his services in the treatment rooms of the prison as significant. In doing so, the BMF differentiates between the mere opportunity of room-sharing from a contractually agreed-upon and long-standing existing right to using the facilities to render the services. Contrary to the BFG, considering the specifics of the business activity carried out, access restrictions or being accompanied by guards do not exclude the power of disposal. Furthermore, the BMF considers the extent of use of the treatment rooms and assumes a permanent establishment of the German dentist to exist.

Outlook

The tax authority has filed an appeal with the Austrian Supreme Administrative Court (VwGH). In practice, we expect a trendsetting decision, having great impact on various types of cross-border functions and services. In this matter the understanding of power of disposal by the VwGH will be crucial.

Authors: Martin Jann, Marlies Ursprung-Steindl, Isabella Gagulic