EU VAT After the decision in the ECJ Case Danske (C-812/19), the argumentation of the ECJ should be taken into account to solve the legal uncertainty businesses are facing with regard to ”Fixed Establishment”. If parties are legally independent from each other, there can never be a fixed establishment ”through the activities” of another and different corporate body in another country.
- In FCE Bank (C-210/04), ECJ decided that a Head Office and its Branch is the same taxable person
- In Skandia (C-7/13) & Danske (C-282/19), ECJ decided that if either the Head Office or the Branch (or both) are part of a VAT group, these are separate taxable persons
- Interim conclusion 1: Hence, the fact that there is a VAT group (taxable person) supersedes the fact that a head office and a branch are the same taxable person. So the taxable person part of a VAT group stops existing for VAT purposes, and is integrated and acts in the name of the group for VAT purposes and is as a consequence a separate taxable person from its head office.
- Cfr. point 26 of the ECJ Decision in Danske (C-812/19): ” It follows that, where the principal establishment and branch of a company are situated in different Member States and one belongs to a VAT group, the legal relationship between them must be assessed by taking account, first, of the fact that that group is placed on the same footing as a single taxable person and, second, of the territorial limits of that group.”
- A taxable person that performs an economic activity may well be a fixed establishment of a foreign legal entity and as such the two will constitute a single taxable person for VAT ….. (cfr. the many ECJ cases on Fixed Establishments)
- Interim conclusion 2: The territoriality principle, referred to for the consideration of a VAT group, is not applicable for the assessment of the existence of a Fixed Establishment. The fact that a taxable person, deemed to be the fixed establishment of a non-established entity, acts indepently (separate legal person) in another country is ignored for the assessment of a Fixed Establishment.
- Proposal: There can only be a fixed establishment of a non-established entity if the latter acts through a branch outside its country of establishment. The definition of Fixed Establishment should be ringfenced and be based taking into account the legal/corporate set-up, recognize the concept of legal relationship and legal independency. This should solve a lot of discussions and make an end to the legal uncertainty businesses in the European Union need to deal with.
Happy to discuss, let me have your input, thoughts, remarks, ….
Personal opinion of Luc Dhont
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