EU Member States have recently reached an agreement at union level on a common set of interpretations regarding the place of supply of services relating to immovable property. These rules will come into effect on 1 January 2017. The German tax authorities have, however, to a large extent already anticipated these changes and have already issued guidance on the treatment to be applied to property related services supplied since 31 December 2012. This guidance is based on the non-binding guidelines previously published by the EU VAT Committee.
As well as clarifying the definition of property for VAT purposes the guidance of the German tax authorities provides a number of examples of property-related and non-property related services. Classification of a service as property related will ultimately assist in determining the place of supply of that service.
Property-related services are, for example, property management services consisting of the operation of commercial, industrial or residential real estate by or on behalf of the owner of the property. Also included are the grant of rights of use and enjoyment over property or a part thereof, the maintenance, renovation and repair work to buildings or parts of the buildings, the installation, assembly, maintenance and monitoring of machines or items of equipment making up an integral part of the building, as well as security services relating to the property and the erection of scaffolding.
The storage of goods is property-related, where the storage relates solely to a specific property or specific part of a property as agreed between the contracting parties. This is in line with the binding interpretation of the VAT Directive effective from 2017, which also has regard to whether a customer is assigned a specific part of immovable property for his exclusive use. Recently in the RR Donnelley case (C-155/12) the Court of Justice of the European Community indicated that the extent to which the customer has access rights is another important factor in determining whether the service is deemed to relate to immovable property. Furthermore, in cases of complex storage services, the Court noted that individual elements of the services can be independent supplies if they are not absolutely necessary to ensure improved storage.
Non-property related services
Non-property related services could include the management of a portfolio of investments in real estate, the preparation of construction plans for buildings or parts of the buildings that cannot be attributed to a specific property or part of a property, advertising services, even if these include the use of a property. Services including advising on the terms of a property agreement, the enforcement of any such agreement, or evidence that such an agreement exists, are also regarded as non-property related, unless such services are related to the transfer of a title to property (e.g. legal and tax advice on property matters). The supply of items or equipment, which are used by the recipient of the supply to carry out work relating to a property (e.g. the rental of scaffolding) is non-property related, provided that the trader in supplying the items or equipment does not assume any responsibility for carrying out the work in question.
Businesses operating throughout the EU should note that all Member States did not unanimously agree on the guidelines of the VAT Committee. Accordingly, there is potential for very different interpretations of property-related services to apply within the EU before 2017.