European Union: Judgement on VAT Fixed Establishment ECJ case Adient C-533/22

Consistent with its recent judgments in the cases C-333/20 (Berlin Chemie) and C-232/22 (Cabot Plastics), the European Court of Justice (ECJ) ruled that it cannot be interpreted that VAT fixed establishment would exist:

• solely if the two companies belong to the same group or those companies are bound as between themselves by a contract for the provision of services.
• whereby a company which receives manufacturing services provided by a company established in another Member State, has in that other Member State a structure which intervenes in the supply of the finished products arising from those manufacturing services, nor when those supply transactions are carried out mostly outside that Member State and that those that are carried out there are subject to VAT are relevant to establishing that that company has 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 TRIP DOWN MEMORY LANE

Background of Preliminary Rulings on Fixed Establishments for VAT Purposes:

Since 2018, there have been five requests for preliminary rulings on the criteria for determining the existence of a fixed establishment for VAT law. Notably, three of these requests have followed the 2020 Dong Yang judgment, which examined whether a controlled or group company could be considered a fixed establishment of the parent or another group company. This recent surge is surprising, given that only six similar requests had been made in the previous 40 years since the Sixth Council Directive 77/388/EEC.

Court's Involvement and Precedent Cases:

The Court has influenced this development through decisions like the DFDS case, where a company acting as an auxiliary organ but possessing the necessary resources was deemed a fixed establishment. In Dong Yang, the Court acknowledged that a subsidiary might constitute a fixed establishment for its parent company, prompting tax authorities to scrutinize corporate structures for such establishments within subsidiaries or group companies.

Adient Case from Romania:

A Romanian court was questioning whether a group company in Romania can be a fixed establishment for a contract partner in Germany. This scenario would shift the place of service provision from Germany to Romania, affecting where the transaction is taxed. However, since all involved companies can deduct input tax, the issue primarily concerns interest and penalty charges rather than safeguarding tax revenues.

Opportunity for Clarification:

The Court now had another chance to clarify under what circumstances an independent company can also serve as a fixed establishment for its contract partner, thereby enhancing legal certainty for tax authorities and taxable entities.

Sources/ recommended read:

• CURIA - Case information (europa.eu)