Briefing Document: EU VAT principles on ”Fixed Establishment” based on ECJ/CJEU transactions

This briefing document provides a review of key themes and important ideas drawn from recent and landmark judgments of the Court of Justice of the European Union (CJEU) concerning the concept of “fixed establishment” for Value Added Tax (VAT) purposes within the EU. The sources focus primarily on the interpretation of Article 44 of the VAT Directive (2006/112/EC) and related implementing regulations, as well as the refund of VAT to taxable persons not established in a Member State.

Key Themes:

Definition of Fixed Establishment: A core theme across the judgments is the definition and criteria for establishing a “fixed establishment.” The consistent requirement is for a “sufficient degree of permanence and a suitable structure in terms of human and technical resources” to either receive and use services (for the recipient) or to supply services/goods (for the supplier).
Distinction between Recipient and Supplier: The assessment of whether a fixed establishment exists under Article 44 of the VAT Directive primarily focuses on the recipient of the services, not the supplier. However, the concept is also relevant for the supplier in other VAT contexts (e.g., reverse charge mechanisms).
Human and Technical Resources: The physical presence of both human and technical resources with a degree of permanence is repeatedly emphasized as crucial. A structure lacking its own staff is generally not considered a fixed establishment.
Legal Independence vs. Economic Reality: While legal independence is a factor, the economic and commercial reality is paramount. Belonging to the same group of companies or having a subsidiary in a Member State does not automatically create a fixed establishment for the parent company.
Availability and Control of Resources: For the resources of a service provider to be considered those of the recipient’s fixed establishment, the recipient must have “the resources of its service provider at its disposal as if they were its own.” Exclusive contractual undertakings may be relevant but are not, on their own, sufficient.
Purpose of the Fixed Establishment: The fixed establishment must have the capacity to receive and use the services provided to it for its own business needs. Engaging in other activities in the Member State (e.g., selling goods produced through tolling services) does not automatically mean the establishment can receive the services at that location.
Tax Representatives and Fixed Establishments: The mere designation of a tax representative in a Member State does not, by itself, constitute a fixed establishment for a taxable person established elsewhere.
Specific Rules for Electricity and Gas: Specific rules exist for determining the place of supply for electricity and gas to taxable dealers, which impacts the ability to claim VAT refunds under the Eighth Directive.

Most Important Ideas and Facts:

Definition of “Fixed Establishment” (Article 11 Implementing Regulation No 282/2011): This regulation defines a fixed establishment as “any establishment, other than the place of establishment of a business characterised by 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 provided to it for its own needs.” (Cited in Cabot Plastics Belgium, Adient, Dong Yang Electronics, and Welmory).
Requirement for Human and Technical Resources: The CJEU consistently emphasizes the need for both human and technical resources. In Titanium, the Court ruled that “a structure without its own staff cannot fall within the scope of the concept of a ‘fixed establishment’”. Similarly, ARO Lease stated that a leasing company without “either its own staff or a structure which has a sufficient degree of permanence… to enable the services in question to be supplied on an independent basis, it cannot be regarded as having a fixed establishment in that State.”
Assessment Based on the Recipient (for Place of Supply of Services): For the purpose of determining the place of supply of services to a taxable person under Article 44 of the VAT Directive, the existence of a fixed establishment is assessed “by reference to the taxable person receiving them” (Adient, citing Welmory and Berlin Chemie A. Menarini). This is distinct from other VAT provisions where the assessment might be made by reference to the supplier.
Legal Status Alone is Insufficient: The classification as a fixed establishment “cannot depend solely on the legal status of the entity concerned” (Adient, citing Dong Yang Electronics). Belonging to the same group or having a subsidiary does not automatically create a fixed establishment (Dong Yang Electronics and Adient).
Resources Must Be Available as if Own: For the resources of a service provider to be considered those of the recipient’s fixed establishment, the recipient must have them “at its disposal as if they were its own” (Adient, citing Berlin Chemie A. Menarini and Cabot Plastics Belgium).
Distinct Resources for Recipient’s Fixed Establishment: The existence of a fixed establishment of the service recipient “presupposes that it is possible to identify human and technical resources which are distinct from those used by the supplier for the fulfilment of its own supplies of services” (Adient, citing Berlin Chemie A. Menarini and Cabot Plastics Belgium). The “same means cannot be used both by a taxable person, established in one Member State, to provide services and by a taxable person, established in another Member State, to receive the same services within a supposed fixed establishment situated in the first Member State” (Adient).
Irrelevance of Ancillary Services for Fixed Establishment Determination (for Recipient): The fact that a service provider also provides ancillary or additional services facilitating the recipient’s business in that Member State (e.g., logistical assistance, marketing services) “has no bearing on the question of the existence of a fixed establishment of that recipient” (Cabot Plastics Belgium and Berlin Chemie A. Menarini). The focus is on the capacity to receive and use the core services.
VAT Refund Rights for Electricity Suppliers: A taxable person established in one Member State who supplies electricity to taxable dealers established in another Member State has the right to a refund of input VAT in the latter State under the Eighth Directive. This right is “not precluded merely by the designation of a tax representative” (CURIA – Documents, 6 February 2014 judgment).
Place of Supply for Electricity to Taxable Dealers: Under Article 38(1) of the VAT Directive, the place of supply of electricity to a “taxable dealer” is deemed to be “the place where that taxable dealer has established his business or has a fixed establishment”.
Taxable Person Not Established in the Territory (for VAT Refund): Article 1 of the Eighth Directive sets out two cumulative conditions for a taxable person to be considered “not being established in the territory of the country” and thus entitled to a refund: the absence of any establishment and the absence of any supplies of goods or services in that Member State (with limited exceptions) (CURIA – Documents, 6 February 2014 judgment). However, the second subparagraph of Article 171(1) of the VAT Directive provides an exception for supplies of goods or services where the customer is liable for VAT under the reverse charge mechanism (e.g., electricity supplies to taxable dealers).
Taxable Person Not Established (for Reverse Charge – Article 192a VAT Directive): For the purposes of determining liability for VAT payment, a taxable person with a fixed establishment in a Member State where tax is due is regarded as not established if they make a taxable supply of goods or services in that state and their establishment does not intervene in that supply (Article 192a VAT Directive, cited in Adient and Roadtrip through ECJ Cases). Intervention means the use of the fixed establishment’s human and technical resources for transactions inherent in the fulfillment of the supply.

In summary, the CJEU’s jurisprudence provides a clear framework for assessing the existence of a fixed establishment for VAT purposes, emphasizing the essential elements of permanence, suitable human and technical resources, and the capacity to receive and use services. While legal structures are considered, the economic reality of having dedicated and distinct resources at one’s disposal is the determining factor. The case law also clarifies the application of VAT rules in specific scenarios like electricity supply and the interaction of fixed establishments with reverse charge mechanisms and VAT refunds.

Briefing Document: EU VAT principles on ”Fixed Establishment” based on ECJ/CJEU transactions

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