A new minefield is created around fixed establishments for VAT purposes, even if there is an extensive case-law of the European Court of Justice to determine whether such an establishment exist or not. The main elements of this legal analysis were also embedded into the EU VAT Regulations, however, some of the member states tend to interpret now these rules more widely as before. This approach creates various possibilities for tax authorities to penalise costly the different interpretation of foreign entities.

Following Spain and Poland, now it seems that the Italian tax authorities also joined and started challenging the business model of those foreign companies that provide services/goods via the internet. As reported in newspapers and websites, Facebook Italy and Google Italy are currently under tax investigation. Furthermore, the Italian Ministry of Finance has officially explained the reasons behind the tax audit on Google, as follows:

(i) the structure where its Italian subsidiary carries out supporting services to the non-established company (sales support, marketing service, administrative services etc.) is groundless. The Italian subsidiary actually does not carry out preparatory or auxiliary activities, but supplies goods and services, itself. The structure has the aim to shift profits in a low taxation legislation (Ireland).

(ii) the core business is managed from abroad (i.e. the services/goods are provided by the non-established company from abroad to Italian customers). Revenues from the above (alleged) supplies should have been taxed in Italy both from corporate tax and VAT perspective (regarding VAT, the Italian tax authorities argue that the Italian subsidiary is a permanent establishment of the foreign entity).

The basic question that arise in all these countries seems to be that in what extent a local subsidiary or in Spain specifically a rented warehouse could create an establishment for a foreign entity. ECJ case-law provides few arguments against these challenges, but no clear guidance is available at moment. Therefore detailed planning, correct thoughts and perfect implementation seem to be absolutely crucial to avoid huge risks.