On 13 June 2024 the Court of Justice of the European Union (CJEU) gave its verdict in case number C‑533/22, again holding that a fixed establishment for VAT purposes will not arise merely because two entities legally bound as between themselves additionally enter into a contract for the provision of services. Purchase of composite services from a related party based in another EU country does not cause a fixed establishment to arise by operation of law in that country for the recipient of the services if the recipient does not have in that country sufficient human and technical resources allowing it to independently conduct taxable activities.
The case concerned a German-based company which ordered a composite service from its affiliate based in Romania, including the processing and assembly of upholstery components as well as ancillary and administrative services (such as access to shared accounting system and orders for the purpose of improved order management). Applying Romanian place-of-supply rules as well as the VAT Directive, both parties decided that the services are taxable in the purchaser’s home country, hence the provider issued its invoices without Romanian VAT. A tax inspection was held during which the Romanian authorities claimed the Romanian affiliate should be considered to be a fixed establishment of the German company. In consequence, they held the place of supply was in Romania and the Romanian affiliate was required to ensure its invoices included Romanian VAT. Also, proceeding of their own initiative, the Romanian authorities registered the German company for Romanian VAT,
Such an interpretation of the VAT Directive was opposed by CJEU again. The EU’s top court held that “a company subject to VAT having its business in one Member State, which receives services provided by a company established in another Member State, does not have a fixed establishment in that other Member State if its technical and human resources in that Member State are not distinct from those by which the services are supplied to it or if those human and technical resources perform only preparatory or auxiliary activities.” The mere fact that services are provided between companies from the same group cannot operate as an argument for the emergence of a fixed establishment.
This is another of a series of recent CJEU judgments on the definition of a fixed establishment for VAT purposes, clearly setting a certain line of authority especially in the context of intercompany relationships. In previous newsletters we mentioned cases C-333/20 (judgment of 7 April 2023) and C-232/22 (judgment of 29 June 2023). As can be seen in all those cases, CJEU expressly requires a clear and independent setup (human and technical resources) to exist in the given EU Member State through which the foreign entity can independently purchase and supply services. Even though the present case was resolved under Romanian law, it can be used together with the earlier cases as an important argument in disputes with Polish tax authorities insisting on the existence of a fixed establishment for VAT purposes, especially based on resources belonging to a subcontractor or affiliate.
If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant.
This is to let you know that on 13 June 2024 the Court of Justice of the European Union (CJEU) gave its verdict in case number C‑533/22, again holding that a fixed establishment for VAT purposes will not arise merely because two entities legally bound as between themselves additionally enter into a contract for the provision of services. Purchase of composite services from a related party based in another EU country does not cause a fixed establishment to arise by operation of law in that country for the recipient of the services if the recipient does not have in that country sufficient human and technical resources allowing it to independently conduct taxable activities.
The case concerned a German-based company which ordered a composite service from its affiliate based in Romania, including the processing and assembly of upholstery components as well as ancillary and administrative services (such as access to shared accounting system and orders for the purpose of improved order management). Applying Romanian place-of-supply rules as well as the VAT Directive, both parties decided that the services are taxable in the purchaser’s home country, hence the provider issued its invoices without Romanian VAT. A tax inspection was held during which the Romanian authorities claimed the Romanian affiliate should be considered to be a fixed establishment of the German company. In consequence, they held the place of supply was in Romania and the Romanian affiliate was required to ensure its invoices included Romanian VAT. Also, proceeding of their own initiative, the Romanian authorities registered the German company for Romanian VAT,
Such an interpretation of the VAT Directive was opposed by CJEU again. The EU’s top court held that “a company subject to VAT having its business in one Member State, which receives services provided by a company established in another Member State, does not have a fixed establishment in that other Member State if its technical and human resources in that Member State are not distinct from those by which the services are supplied to it or if those human and technical resources perform only preparatory or auxiliary activities.” The mere fact that services are provided between companies from the same group cannot operate as an argument for the emergence of a fixed establishment.
This is another of a series of recent CJEU judgments on the definition of a fixed establishment for VAT purposes, clearly setting a certain line of authority especially in the context of intercompany relationships. In previous newsletters we mentioned cases C-333/20 (judgment of 7 April 2023) and C-232/22 (judgment of 29 June 2023). As can be seen in all those cases, CJEU expressly requires a clear and independent setup (human and technical resources) to exist in the given EU Member State through which the foreign entity can independently purchase and supply services. Even though the present case was resolved under Romanian law, it can be used together with the earlier cases as an important argument in disputes with Polish tax authorities insisting on the existence of a fixed establishment for VAT purposes, especially based on resources belonging to a subcontractor or affiliate.
If this issue pertains to your business and you are interested in our assistance, please contact us.
This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.