Back to publications On June 13, 2024, the Court of Justice of the European Union (CJEU) issued its judgment in case C-533/22, addressing important issues related to VAT taxation in the context of international service transactions. The ruling clarifies the conditions under which a business can be considered to have a permanent establishment in another EU member state, which is crucial for determining the place of VAT taxation of services.
Case Background
The case involved the German company Adient Germany, which, as part of the same corporate group, collaborated with the Romanian company Adient Romania to produce and assemble upholstery parts for car seats. The Romanian company not only provided production services but also offered auxiliary services such as receiving, storing, and controlling raw materials and storing finished products.
The Romanian company issued invoices without VAT, believing that the services should be taxed in Germany, i.e., the country where the service recipient was established. However, following a tax audit, the Romanian tax authorities determined that the German company had a permanent establishment in Romania, and thus the transaction should be taxed in Romania.
Key Points of the CJEU Judgment
The CJEU ruled that mere affiliation within the same corporate group and the conclusion of a service agreement are insufficient to determine that a business has a permanent establishment in another member state.
To establish the existence of a permanent establishment, a company must have a permanent structure in the member state and possess technical and human resources that allow it to receive the services that will be used in its operations.
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Technical and Human Resources: These resources must be clearly separated. To be considered as having a permanent establishment, the company’s technical and human resources in the other state must be independent.
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Case of Adient Germany: The CJEU ruled that the resources of the Romanian company were not sufficient to establish the presence of a permanent establishment for Adient Germany in Romania because these resources were used to fulfill orders for Adient Germany, rather than being used to conduct independent business activity by the German company in Romania.
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Permanent Establishment and Product Delivery: The mere presence of a structure in another member state that participates in the delivery of products resulting from the services rendered, or the fact that most transactions occur outside that state, does not automatically mean that the company has a permanent establishment in that country.
As a result, the CJEU ruled that the services provided by the Romanian company to the German company were not subject to VAT in Romania because they were not provided to an entity with a permanent establishment in the country. The taxation took place in the country where the service recipient had real and permanent resources for conducting business, i.e., in Germany.
Further Insights on Permanent Establishment in VAT
For more information on permanent establishments and VAT, you can refer to earlier publications:
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“Permanent Establishment for VAT Purposes – CJEU Ruling in the Case of Berlin Chemie A. Menarini SRL” Link
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“Real Estate Rental and Permanent Establishment for VAT Purposes” Link
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“Subsidiary = Permanent Establishment? Not Always – CJEU Ruling in the Case of Dong Yang Electronics Sp. z o.o.” Link
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“The WSA in Wrocław Asks the CJEU About Permanent Establishment for VAT Purposes” Link
Conclusions for Taxpayers
It is important to remember that Poland’s VAT law is based on the EU VAT Directive, meaning CJEU rulings directly influence how these provisions are applied in Poland. This judgment is significant for companies operating in international markets within corporate groups, as it clarifies the rules for determining the place of business activity for VAT purposes. In light of this ruling, companies should carefully analyze their transactions and structures to avoid improper taxation and potential disputes with tax authorities.
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