On Oct 16, 2014, the ECJ issued his decision in the case C-605/12 on the existence of a Fixed Establishment.
Article in the EU VAT Directive
Article 44 of Council Directive 2006/112/EC
Facts
The CJEU ruled that Welmory has a permanent establishment in Poland if this establishment is characterized by a sufficient degree of sustainability and a suitable structure to be able to purchase services and use them in its business operations. It is up to the Polish court to check whether this is the case.
The Polish company Welmory sp zoo concludes a cooperation agreement with Welmory Ltd, a Cypriot company (WC). Under this agreement, WC must operate a website in Polish, on which auctions were organized, and Welmory must offer and sell products for auction on this website on its own account. However, customers can only bid on the products if they first purchase Bid Credits from WC. Welmory receives a fee from WC for the service of the sale of the products and related services, such as advertisements, and does not pay VAT on this. According to Welmory, WC must, as a customer of the services, pay the VAT in Cyprus, the place of its registered office. According to the Polish tax authorities, Welmory’s services are taxed in Poland because WC has a permanent establishment in Poland, for which the services have been performed.
The Polish court has referred a preliminary question in this case.
The Court of Justice of the EU ruled that WC has a permanent establishment in Poland if this establishment is characterized by a sufficient degree of durability and a suitable structure in terms of personnel and technical resources to be able to purchase and use services in its business operations. According to the ECJ, it is up to the Polish court to check whether this is the case.
The ECJ also notes that, if the facts put forward by Welmory sp thus prove to be correct, WC does not have a permanent establishment in Poland. According to the CJEU, WC does not have the infrastructure that is necessary to be able to purchase and use services provided by Welmory sp zoo in its business operations.
Question
For the purposes of the taxation of services supplied by company A, which is established in Poland, to company B, which is established in another Member State of the European Union, in circumstances where company B carries out its economic activity by making use of company A’s infrastructure, is the fixed establishment within the meaning of Article 44 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax situated in the place in which company A is established?
AG Opinion
A fixed establishment within the meaning of the second sentence of Article 44 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax as amended by Directive 2008/8/EC is an establishment that has a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs. It is not necessary for it to have its own human and technical resources for this, provided the third-party resources at the establishment are available to it in a way that is comparable to having its own resources.
Decision
A first taxable person who has established his business in one Member State, and receives services supplied by a second taxable person established in another Member State, must be regarded as having a ‘fixed establishment’ within the meaning of Article 44 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008, in that other Member State, for the purpose of determining the place of taxation of those services, if that establishment is characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive the services supplied to it and use them for its business, which is for the referring court to ascertain.
Source
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