This is to alert you to a favourable CJEU ruling of 7 May 2002 (case C‑547/18) in a Polish case concerning a fixed establishment for VAT purposes.

The referring court (Provincial Administrative Court in Wrocław) requested a preliminary ruling in relation to a Polish company (“Company”) providing services for a company from a third country (“Customer”). The Customer has a subsidiary in Poland that delivers Customer’s goods to the Company for it to render certain services and then picks them back from the Company. Relying on the Customer’s assurances that it does not have a fixed establishment in Poland, the Company issued its invoices for these services without Polish VAT in accordance with the reverse charge mechanism.

According to the Polish tax administration, the Company’s services for the Customer are subject to Polish VAT because they are supplied to a fixed establishment the Customer has in Poland in the form of its Polish subsidiary.

The Court held that [unofficial translation]:

  • “the mere fact that a company from a third country has a subsidiary in a Member State is not sufficient for the service provider to assess that the company has a fixed establishment in the territory of that Member State, and
  • the service provider is not required to investigate into the contractual relationships between the two entities for the purposes of such an assessment.“

Thus, for all practical purposes, the mere fact that a foreign company has a subsidiary in an EU Member State does not conclusively establish that it is a fixed establishment for VAT purposes. This can only be established in accordance with the criteria laid down in Regulation (EU) 282/2011.

Moreover, CJEU held that when a service provider is trying to determine whether its foreign customer has a fixed establishment for VAT purposes, the provider can limit its inquiry to information obtained from the customer. The provider is not required to seek out and identify the relationships between the foreign customer and its local subsidiary.

In accordance with this ruling, in order to apply the proper VAT treatment to services for foreign customers, it is necessary to analyse whether the customers have local fixed establishments. Where such services are provided by unrelated entities, there is no need to inquire into the details of the contractual relationships between the customers and their local subsidiaries.

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.