Fixed Establishments – VAT implications of manufacturing and distribution agreement

The Spanish Supreme Court ruled on 11 November 2020 in a case where a Swiss company was deemed to have created a taxable presence in Spain for VAT purposes. The Swiss company had used the structure, materials, and human resources of its Spanish subsidiary when performing local sales of goods in Spain. The Swiss company was not established in Spain for VAT purposes and, believing that the reverse charge mechanism was applicable, the Swiss company did not charge VAT for these local sales.

The Spanish Supreme Court concluded that: (i) a permanent establishment could be created by the mere sale of goods, since the notion of a permanent establishment affects more than just the place of supply and the taxable person; it also impacts other VAT-related issues, such as the proper mechanism to request a VAT refund, and (ii) a subsidiary could be qualified as a permanent establishment, even if it is a separate legal entity, if it is entirely controlled by the parent company.

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