Posting of workers from a VAT perspective

In practice, companies often do not pay enough attention to the possible implications of posting high-ranking managers to the Czech Republic to manage or supervise another group entity. A number of these arrangements meet the definition of a VAT fixed establishment.

The definition of a fixed establishment for VAT purposes is rather broad: a place that is sufficiently permanent and has appropriate personnel and technical resources through which a taxable person can carry out their business activity.

It is common practice for foreign parent companies to post high-ranking managers to a related party in the Czech Republic under a contract on the provision of managerial services. The equipment that posted workers use in the Czech Republic usually includes an office, a mobile phone or a computer, while these are mostly provided by the Czech entity. According to case law, it is irrelevant whether the equipment is provided by the Czech entity, as long as it can be viewed as sufficiently permanent.

Permanent equipment itself does not suffice to give rise to a VAT fixed establishment: the ‘independence’ condition also has to be met, meaning that the posted manager may make decisions independently of the company to which they are posted.

In many cases, the posted worker has no direct superior, meaning that the parent company is the only entity having a direct influence on them. Obviously, there are certain limits set by the Czech entity, the foreign parent, or both; however, this should not affect the ability to make independent decisions. According to case law, to assess independence, it is crucial whether the activity carried out by the posted worker constitutes a performance of the parent company’s business activity in the Czech Republic, and if the services thus can theoretically (without it necessarily being the case) be also rendered to other companies in the Czech Republic, thanks to the resources/equipment available. This would namely involve situations where the posted worker has certain assets for their exclusive use, and a working space (such as an office) assigned solely to them.

Although the issue has been on the agenda of several sessions of the Coordination Committee of the Czech Chamber of Tax Advisors and the General Financial Directorate, so far none of them has offered clear guidance on the treatment of these cases. In any case, it is advisable to assess the postings of workers on an individual basis and review the concrete contractual arrangements between the related entities.

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