- A Fixed Establishment (FE) is a tax concept in VAT law that can make a company liable for local VAT in a foreign country, even without a traditional physical presence or employees, potentially leading to significant back taxes and penalties if the reverse charge mechanism is invalidated.
- The definition of FE has evolved significantly through EU court rulings, starting with a strict requirement for “own” staff and facilities, then broadening to include “control comparable to ownership” over third-party resources (Welmory case), and more recently, narrowing again to emphasize the need for “independent” and “separate” human and technical resources that are not simultaneously providing and receiving services (Titanium, Berlin Chemistry, Cabot Plastics, Adient cases).
- To avoid an FE, companies outsourcing production or using fulfillment services abroad should ensure contracts clearly define functions and risks, maintaining a clear separation of resources from the service provider and avoiding arrangements that give them control over external facilities analogous to ownership.
Source Daniel Więckowski
See also
- Roadtripp through ECJ Cases: Fixed Establishments (Art. 44 & 45)
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