As a result of a judgment of the European Court of Justice (Danske Bank case), the Netherlands has adjusted its policy on permanent establishments.
A permanent establishment, together with the head office, forms one taxable person, so that no VAT is levied on mutual (‘internal’) services. The policy change concerns the situation where a permanent establishment or the head office is part of a fiscal unity (VAT). At that moment, the link between the permanent establishment and the head office is, as it were, broken and mutual services become subject to VAT. In that case, the normal VAT rules apply and there is an obligation to issue invoices. If the permanent establishment deals with VAT-exempt services, this policy adjustment will lead to cost-increasing non-deductible VAT.