On 1 February 2024, Juliane Kokott as Advocate General of the Court of Justice of the European Union issued her opinion in case C‑533/22 relating to whether an entity can have a fixed establishment in a Member State by reason of having an affiliate from the same group of companies in that Member State.

The case involved a German-based company (registered for Romanian VAT) which was purchasing services from its affiliate based in Romania. The services consisted of processing and assembly of raw materials, semi-finished goods and finished products. The German company remained the owner of the raw materials, semi-finished goods and finished products all the time whreas the Romanian company performed the services through its two branches. For VAT purposes, the transactions were taxed in Germany as the place of supply of services is the place of establishment of their recipient.

Romanian tax authorities claimed that the German company had sufficient technical and human resources in Romania to conclude that it had a fixed establishment there for VAT purposes (operating via the Romanian company’s branches). In addition, following a tax inspection, the German company was automatically registered for tax purposes through a fixed establishment in Romania. The German company appealed to a Romanian court which turned to CJEU for a preliminary ruling on six questions.

The Advocate General’s proposed answers are as follows:

  • In view of the fact that the same means (measures) cannot be used at the same time both to provide and receive the same services, there could not be a taxable transaction under Article 2(1)(c) of Directive 2006/112/EC even if it were to be found that a fixed establishment existed.
  • For the purposes of the second sentence of Article 44 of Directive 2006/112, an independent group company (in another Member State) is not to be regarded as a fixed establishment of a different group company on the sole basis of a link recognised under company law. Even a complex contract for the supply of services does not mean, in principle, that the supplier is effecting a taxable transaction in favour of a fixed establishment of the service recipient formed on the basis of that contract. In that regard, the place of supply of those services depends neither on the nature of the output transactions (supply of goods or services) of the service recipient, nor on the place of ‘consumption’ of the specific manufacturing services.
  • For the purposes of the second sentence of Article 44 of Directive 2006/112, a fixed establishment exists only if it substitutes for a head office located within the territory of another Member State. Consequently, a contract entered into with a supplier of services can be capable of constituting a fixed establishment only if that contract does not relate solely to the provision of services to goods belonging to the recipient of the services. Instead, it must be aimed at provision of the human and/or technical resources that are necessary to ensure that the recipient can supply goods or services on site (that is, at the place of the fixed establishment) that are similar to those provided at a head office.

This opinion is another major step towards setting VAT guidelines for the definition of a fixed establishment, in this case in relation to commercial dealings between affiliated companies. The opinion emphasizes that a fixed establishment requires human and technical resources in the country which are capable of independently purchasing and providing services. The mere fact that a comprehensive service contract was concluded and being performed in relations with a company from the same group does not of itself mean that a fixed establishment exists in the given country for VAT purposes.

Importantly, while Advocate General’s opinions do not bind the European court, in most cases it fully agrees with their conclusions.

If this issue pertains to your business and you are interested in our assistance, please contact us.

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