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Place of supply of services connected with immovable property as of 1 January 2017

2017-01-02

Proper determination whether, for VAT purposes, a service will be connected with immovable property is often problematic for taxable persons. In the case where a service concerned meets the conditions for qualifying it as connected with immovable property, the place where a service is supplied shall be the place where the property is situated (Article 28e of the VAT Act) – as in such case the general principle that the place where a service is supplied shall be the place where the purchaser has established his business (Article 28b of the VAT Act) is not applicable. A solution which is to assure proper classification of such services, and  consequently their proper taxation, should be amended provisions of the Council Implementing Regulation (EU) No 282/2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (“Regulation”).

As of 1 January 2017, the Regulation will be supplemented with new Article 31a, pursuant to which the notion of services connected with immovable property shall include only those services that have a sufficiently direct connection with that property, and such connection is in place primarily in the following cases:

  1. where services are derived from an immovable property and that property makes up a constituent element of the service and is central to, and essential for, the services supplied,

  2. where services are provided to, or directed towards, an immovable property, having as their object the legal or physical alteration of that property.

The Regulation indicates specifically which services should be in particular regarded as meeting the above criteria. The catalogue is very extensive and includes, inter alia, such activities as:

  • the drawing up of plans for a building,

  • the provision of on site supervision or security services,

  • surveying and assessment of the risk and integrity of immovable property,

  • the valuation of immovable property,

  • the granting of access to lounges in airports, or the use of an infrastructure for which tolls are charged, such as a bridge or tunnel,

  • the maintenance, renovation and repair of a building or parts of a building, including work such as cleaning, tiling, papering and parqueting,

  • the installation or assembly of machines or equipment which, upon installation or assembly, qualify as immovable property,

  • the maintenance and repair, inspection and supervision of machines or equipment if those machines or equipment qualify as immovable property,

  • property management other than portfolio management of investments,

  • intermediation in the sale, leasing or letting of immovable property,

  • legal services relating to the transfer of a title to immovable property.

At the same time, the legislator has included also a negative catalogue in the Regulation. For example the following will not be services connected with immovable property:

  • the drawing up of plans for a building or parts of a building if not designated for a particular plot of land,

  • the storage of goods in an immovable property if no specific part of the immovable property is assigned for the exclusive use of the customer,

  • the provision of advertising, even if it involves the use of immovable property,

  • intermediation in the provision of hotel accommodation,

  • the provision of a stand location at a fair or exhibition site together with other related services to enable the exhibitor to display items, such as the design of the stand, transport and storage of the items, the provision of machines, cable laying, insurance and advertising,

  • the installation or assembly, the maintenance and repair, the inspection or the supervision of machines or equipment which is not, or does not become, part of the immovable property,

  • legal services not relating to the transfer of a title to immovable property.

Of significance for taxable persons may be also Article 31b of the Regulation, which regards putting equipment at the disposal of a customer. Where equipment is put at the disposal of a customer with a view to carrying out work on immovable property, that transaction shall only be a supply of services connected with immovable property if the supplier assumes responsibility for the execution of the work. A supplier who provides the customer with equipment together with sufficient staff for its operation with a view to carrying out work shall be presumed to have assumed responsibility for the execution of that work. The presumption that the supplier has the responsibility for the execution of the work may be rebutted by any relevant means in fact or law.

The new provisions reflect and in some way systemize the practice worked out over the years, mainly by the CJEU, and their implementation should be assessed in a positive way.

Please remember that Implementing Regulations are binding in their entirety and should be applied in all EU Member States directly. They do not have to be implemented to the national legal regime, hence in order to determine as of 1 January 2017 whether a service concerned is connected with immovable property, and consequently chargeable with tax at the place of its situation, the taxable person should refer to the provisions of the Regulation.