Fixed Establishment in the 21st Century

Globalization, the growth of cross-border trade and the digitalization of the economy have led to discussions on the fundamental tenets of international taxation. The concept of establishment is certainly an area at the centre of ongoing debates. Despite VAT increasing its global appeal during the second half of the 20th century, there have been no proposals for reforming a cornerstone concept such as that of the fixed establishment in “the illusory and fictitious world of VAT”, as referred to by Professor Ben Terra back in 1989. Since its development by the Court of Justice of the European Union (ECJ) back in 1985, the Berkholz (Case C-168/84) formula has remained nearly immutable throughout the years. However, this chapter argues that this impression is partly misplaced. Although the four elements embedded in its definition have not quite changed over the decades, the fixed establishment is a fact-driven concept, and its assessment therefore requires case-by-case handling. In particular, in order for a fixed establishment to exist, certain activities or functions are required to be attributed to it. Reference to the activities or functions actually performed makes the fixed establishment rather fluid as a notion, so the concept might eventually adapt to the 21st-century reality and new business models, especially those of the digital economy.