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Establishment of a Permanent Establishment abroad
Whether an Austrian subcontractor establishes a permanent establishment abroad depends in particular on the duration of the work, the local assignments and the relationship between its individual activities abroad.
In international tax law, the so‑called “permanent establishment” is a central point of reference for the taxation of companies abroad. A permanent establishment abroad exists when a company has a fixed place of business there through which it carries out its activity wholly or partly. Relevant are the local element (specific location), the temporal element (sufficient duration/control) and the functional element (operational activity at the location).
Subcontractor with headquarters in Austria
A main contractor, who carried out activities related to railway construction and maintenance in its state of residence, regularly employed subcontractors for this purpose. One of these subcontractors was a company with its headquarters in Austria. The question was whether the Austrian subcontractor, by its activity abroad (the main contractor’s state of residence), established a permanent establishment there.
View of the Ministry of Finance
The decisive factor is the Perspective of the subcontractor, as the assessment must be made from a subjective standpoint. It must be examined whether the subcontractor, from its own point of view, maintains a fixed place of business abroad. A close link to the main contractor alone is not sufficient. While infrastructure such as track installations can also be regarded as a location‑specific facility, the necessary local connection was lacking in the present case. The subcontractor did not work continuously on a particular section of the railway network, but was deployed intermittently and on varying sections of the network. The assignments were usually short‑term, often only for a few days, and were separated by longer breaks.
Temporal component
The temporal component also argued against the existence of a permanent establishment in this specific case. Activity is generally considered sufficiently lasting only when it is carried out over a longer period, for example twelve months in the case of construction work. If the subcontractor carries out several independent contracts and there is no artificial splitting of the contracts, the periods for establishing permanent establishments must be assessed separately. An Aggregation of the periods is required, however, when the individual (construction) projects are economically and geographically part of a single, cohesive whole. In the present case, the contracts were independent of each other, concerned different track sections and were based on separate agreements.
Accordingly, the geographical connection and the continuity of the activity were missing, so no permanent establishment was established. Even a framework agreement between the main contractor and the subcontractor did not change this outcome.
Subcontractor with headquarters in Austria
A main contractor, who carried out activities related to railway construction and maintenance in its state of residence, regularly employed subcontractors for this purpose. One of these subcontractors was a company with its headquarters in Austria. The question was whether the Austrian subcontractor, by its activity abroad (the main contractor’s state of residence), established a permanent establishment there.
View of the Ministry of Finance
The decisive factor is the Perspective of the subcontractor, as the assessment must be made from a subjective standpoint. It must be examined whether the subcontractor, from its own point of view, maintains a fixed place of business abroad. A close link to the main contractor alone is not sufficient. While infrastructure such as track installations can also be regarded as a location‑specific facility, the necessary local connection was lacking in the present case. The subcontractor did not work continuously on a particular section of the railway network, but was deployed intermittently and on varying sections of the network. The assignments were usually short‑term, often only for a few days, and were separated by longer breaks.
Temporal component
The temporal component also argued against the existence of a permanent establishment in this specific case. Activity is generally considered sufficiently lasting only when it is carried out over a longer period, for example twelve months in the case of construction work. If the subcontractor carries out several independent contracts and there is no artificial splitting of the contracts, the periods for establishing permanent establishments must be assessed separately. An Aggregation of the periods is required, however, when the individual (construction) projects are economically and geographically part of a single, cohesive whole. In the present case, the contracts were independent of each other, concerned different track sections and were based on separate agreements.
Accordingly, the geographical connection and the continuity of the activity were missing, so no permanent establishment was established. Even a framework agreement between the main contractor and the subcontractor did not change this outcome.