VAT/GST: fixed establishment in the digital age

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Fixed establishment for VAT/GST

When a company does business cross-border, what are its obligations and rights in the foreign jurisdictions where it operates? Often, the answer depends on whether it is treated as an established or non-established entity. For taxes on consumption — such as value-added tax (VAT) and goods and services tax (GST) — one important test is whether the foreign entity has a fixed establishment (FE). While the FE concept is similar to the well-known permanent establishment (PE) concept for direct taxes, important differences apply.  

Increasingly, companies that do business in multiple locations need to be aware of how FE is defined for VAT/GST purposes, what their VAT/GST obligations are, and how different definitions of “establishment” used for VAT/GST and for direct tax purposes may interact and develop to respond to the challenges of doing business cross-border in a digital world.

Our 2016 VAT/GST fixed establishment survey

In 2016, we surveyed EY Indirect Tax professionals in 67 countries and asked them how the term “fixed establishment” for VAT/GST is defined in their local tax legislation, whether the concept of FE for VAT/GST is aligned with the concept of permanent establishment for direct taxes in their countries and whether the current definition of FE is under review as a result of projects such as the Base Erosion and Profit Shifting (BEPS) Actions or Court of Justice of the European Union (CJEU) case law.

Read the detailed survey results for more information.

Survey highlights

In the digital age, the FE concept for VAT/GST is more important than ever:

  • Globalization has transformed supply chains and increased the scope and range of cross-border trade in goods and services.
  • Digitization has led to an explosion in international e-commerce and is transforming the very nature of many supplies and how they are supplied.
  • The BEPS Actions of the Organisation for Economic Co-operation and Development (OECD) and the G20, as well as other projects aimed at preventing tax avoidance, have strongly focused on the establishment concept and how it may need to evolve in the digital age.
  • “FE” and “PE” are not always interchangeable terms. In 36 countries surveyed, a foreign company must determine its FE and PE status using different criteria for each type of taxation.
  • The FE concept is changing as a result of these trends. The concepts of a “passive” FE and of a “virtual” FE are evolving in response to developments in how goods and services are supplied using advanced technologies. Multinational companies must keep abreast of changes.
  • The existence of an FE does not automatically determine a company’s PE status. In 41 countries surveyed, having an FE does not automatically create a PE. However, in 32 countries, the existence of an FE could influence the tax administration’s decision about PE status.
  • In 46 countries surveyed, a nonresident company may be obliged to register for VAT/GST without having an FE. Increasingly, nonresident VAT/GST registration applies to foreign providers of e-services.
  • Foreign companies may struggle to meet their VAT/GST obligations in multiple jurisdictions. The risks of noncompliance and the administrative burden of VAT/GST obligations increase costs and tax risk and may influence business decisions such as pricing and market penetration.
  • Multinational companies must stay apprised of changes. Our Digital Tax Updates Map has an up-to-date list of digital tax developments.


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EY -VAT/GST: fixed establishment in the digital age

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