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While the Key point of the ruling is that the fiscal representative requirement is discriminatory, it is also interesting to read how the regional court of appeal decides where a company is established for VAT purposes. This as within the Dutch practise, determining the place of establishment is also a matter that leads to debate more often.

Establishment and Fixed Establishment: Not in the Netherlands

In line with the ruling of the tax court in first instance, the regional court of appeal confirmed that the BV company was not to be considered established in the Netherlands for VAT purposes. By application of the criteria of the EU Implementing Regulation 282/2011 on the EU VAT Directive, the court rules that the decisive factor was where the principal management decisions of the business were taken. The court determines that these were taken by the sole director, who resides abroad. Merely having a statutory seat in the Netherlands, in combination with a rented office that was in practise only used as a postal address, was not sufficient to be considered a Dutch resident taxable person. The fact that also some local operational activities were carried out in the Netherlands, such as client meeting in hotels, did not lead the court of appeal to rule otherwise.

Also the use of certain logistics and administrative support services provided by a Dutch service provider, equally did not create a fixed establishment for the company. This as a service provider retains responsibility for its own resources and staff; those resources do not become resources of foreign based taxable person merely through an outsourcing arrangement. This view is in line with European case law, we for example refer to the 2023 CJEU's ruling in Cabot Plastics Belgium SA.

Key Ruling: Fiscal Representative Requirement Is Discriminatory

The most consequential part of the judgment of the regional court of appeal concerns the Dutch rule requiring non-resident suppliers (and purchasers) without a fixed establishment in the Netherlands to appoint a fiscal representative as a precondition for applying the zero rate to supplies of excise goods within an excise warehouse.

The regional court of appeal departed from the ruling of the court in first instance and held:

• The requirement constitutes a discriminatory measure: it treats foreign-established taxpayers less favourably than Dutch-resident taxpayers, that face no such obligation.
• Directive 2000/65/EC deliberately removed the ability of Member States to make fiscal representation mandatory for the payment of VAT, except where no equivalent mutual assistance instrument exists with the taxpayer's country of establishment. As the Directive amendment is more recent than the VAT Committee consultation to which the tax inspector refers, the Directive amendment prevails.
• Consequently, the discrimination is not justified when the transaction is performed by a taxpayer established in a country with which the Netherlands has concluded a mutual assistance instrument equivalent to that existing within the EU regulatory framework. Even a general presumption of fraud cannot justify a measure that goes beyond what is necessary to achieve the objective of combating tax evasion.
• The fiscal representative requirement does not contribute to proving that the material conditions for the zero rate are met (meaning: that goods were supplied while situated in an excise warehouse and not released for final consumption). Where material conditions are fulfilled, EU case law prohibits denial of the zero rate solely on grounds of non-compliance with a formal requirement. This for example follows from the Collée case, on which the CJEU ruled in 2007.

The Borgen Tax take - Practical Implications

This ruling is very relevant for both non-EU-resident and EU-resident businesses that supply excise goods within Dutch excise (and VAT) warehouses. Where a taxpayer is established in a country with a mutual assistance arrangement comparable to that within the EU, the Dutch obligation to appoint a fiscal representative as a condition for the zero rate cannot be enforced in view of the regional court of appeal. In fact, we believe this case may have a far broader impact. We consider the fiscal representation requirement may also be discriminatory for non-resident businesses importing goods in the Netherlands from 3^rd countries, such as China and Switzerland, that wish to obtain an import VAT deferment licence (i.e. commonly referred to as the article 23 code number). Not being required to appoint a fiscal representative, could lead to significant cost savings.

We note that the Dutch State Secretary of Finance believes that the ruling provides for an incorrect interpretation of law and has therefore filed for appeal with the Dutch Supreme Court (Dutch: Hoge Raad). It may therefore take at least a few months before clarity on this point can be provided.

That said, businesses that have been denied the zero rate solely on the ground of not having appointed a VAT representative, or that have incurred costs to comply with the fiscal representative requirement, really should assess if action needs to be taken, for example to retain rights.

We are pleased to discuss this matter further with you.