Key issue: whether services received through a German liaison office are supplied to the German fixed establishment or to the foreign head office for VAT purposes.

The BFH held that advertising services commissioned by a German liaison office of a company headquartered in a third country were not taxable in Germany where the services were not used for the needs of the German office, but for the economic activity of the head office abroad.

Because the advertising promoted hotel and resort bookings carried out by the foreign head office, the place of supply was the company’s seat of economic activity in the third country, not the German liaison office. As a result, the German VAT shown on the invoices was not legally due, and the taxpayer was not entitled to deduct it as input VAT.