Webinar – Recording – What Does Create a VAT Fixed Establishment? Contract Manufacturing and Tolling Under Scrutiny

Summary

• Tax authorities increasingly challenge toll manufacturing structures, arguing that the resources of a local manufacturer may create a VAT fixed establishment (FE) for a foreign principal, potentially triggering local VAT obligations and registrations. [youtube.com], [vatcalc.com]
• Recent CJEU case law has pushed back against this approach. In both Cabot Plastics (C-232/22) and Adient (C-533/22), the Court confirmed that the mere use of a related-party manufacturer’s personnel and equipment does not automatically create a VAT fixed establishment. [deloitte.com], [vatcalc.com]
• The key test remains whether the foreign company has its own human and technical resources at its disposal in the Member State. Group relationships, exclusivity arrangements, and contract manufacturing agreements alone are insufficient to establish an FE. [bakertilly.nl], [vatcalc.com]

Article

The concept of a VAT Fixed Establishment (FE) remains one of the most contentious areas in European VAT law, particularly for multinational groups that rely on contract manufacturing and toll manufacturing arrangements.

In the video“What Does Create a VAT Fixed Establishment?”, the discussion focuses on a growing trend among certain tax authorities to argue that foreign companies have a local VAT fixed establishment whenever they utilize the resources of a local manufacturing affiliate or service provider. This issue is especially relevant in industries where production is commonly outsourced to contract manufacturers while ownership of the goods remains with another group entity. [youtube.com]

Recent judgments from the Court of Justice of the European Union (CJEU) have significantly clarified the boundaries of the FE concept. In Cabot Plastics Belgium (C-232/22), the Court held that a Belgian toll manufacturer did not create a Belgian VAT fixed establishment for its Swiss affiliate, even where the manufacturing services were provided exclusively to that affiliate and were supported by additional logistics and administrative services. The Court emphasized that the supplier’s personnel and technical resources cannot simultaneously constitute the customer’s own resources for establishing an FE. [deloitte.com], [pwc.ch]

The Court reinforced this principle in Adient (C-533/22). The Romanian tax authorities argued that a German company had a VAT fixed establishment in Romania because its Romanian affiliate performed manufacturing and assembly services. The CJEU rejected this position, confirming that a fixed establishment requires the recipient to have sufficient human and technical resources at its own disposal, enabling it to independently receive and use services. A contractual relationship, even within the same corporate group, is not enough. [vatcalc.com], [bakertilly.nl]

The practical implication is highly significant for multinational businesses. If a fixed establishment were found to exist, companies could face local VAT registration requirements, changes to place-of-supply rules, invoicing implications, and additional compliance obligations. The recent CJEU decisions provide welcome certainty by confirming that ownership of inventory, group affiliation, exclusive service arrangements, and contract manufacturing structures do not automatically create a VAT fixed establishment. [bakertilly.nl], [deloitte.com]

Nevertheless, businesses should continue reviewing their operational models carefully. The CJEU has not eliminated the possibility that an FE may arise where a foreign company genuinely has human and technical resources at its disposal in another Member State. The focus therefore remains on the degree of control and availability of resources, rather than on legal ownership or contractual labels. [pwc.ch], [vatcalc.com]

Further Reading

• YouTube Video: https://www.youtube.com/watch?v=eUuSXKzuMRI
• CJEU Adient (C-533/22): https://curia.europa.eu
• CJEU Cabot Plastics Belgium (C-232/22): https://curia.europa.eu
• Deloitte analysis: https://www.deloitte.com/be/en/services/tax/blogs/cjeu-rules-toll-manufacturer-is-not-a-fixed-establishment-for-vat-purposes.html [deloitte.com]
• PwC analysis: https://www.pwc.ch/en/insights/toll-manufacturing-VAT-fixed-establishments-EU.html