Fixed establishment for VAT purposes – CJEU judgement concerning Berlin Chemie A. Menarini SRL
On April 7, 2022, the Court of Justice of the European Union (CJEU) issued a ruling in the case no. C-333/20, which concerned a fixed establishment for VAT purposes in connection with the ownership of a subsidiary in the territory of a Member State other than the country of establishment.
The case concerned Berlin Chemie A. Menarini SRL, a company incorporated under Romanian law, which provided services to a German entity, Berlin Chemie AG. Importantly, the companies were interrelated in such a way that the Romanian company was a subsidiary of the German company. The companies concluded marketing, regulatory, advertising and representation contracts between themselves, for which the Romanian company invoiced the German company without VAT, on the basis that the latter should be taxed in Germany.
In connection with the above circumstances, a dispute arose between Romanian tax authorities and Berlin Chemie A. Menarini SRL as to whether the place of supply of the services was Germany or Romania. The tax authorities imposed on the Romanian company an obligation to pay VAT with interest on the services provided, stating that the German company had a fixed establishment in Romania because of its subsidiary in that country.
The Romanian company contested the decision of the tax authorities and lodged a complaint with the Bucharest Court of Appeal.
Upon an action lodged by the Romanian company, the Bucharest Court of Appeal referred to the CJEU for a preliminary ruling seeking to establish whether a company established in one Member State has a fixed establishment in another Member State by virtue of having a subsidiary there, which provides it with technical and personnel resources.
According to the CJEU, determining whether a given company has a fixed establishment in the territory of another Member State requires an analysis of whether that place is characterised by sufficient stability and an appropriate structure in terms of personnel and technical facilities to enable it to receive and use the services provided for its own needs. In addition, the CJEU underlined that the same personnel and technical facilities cannot be used concurrently for the provision and receipt of the same services by two entities.
Upon an analysis of the facts of the case, the CJEU ruled that the German company did not have a fixed establishment in Romania and, therefore, that the invoices issued by the Romanian entity, which do not include VAT should not be questioned. The mere fact of having in the territory of another Member State a subsidiary that provides human resources and technical facilities does not prejudge the question of a fixed establishment.
The CJEU judgement in the case of Berlin Chemie A. Menarini SRL is yet another judgement concerning fixed establishment favourable to taxpayers. Furthermore, it provides some guidance that can be followed in determining the circumstances in which a fixed place of business arises, which may lead to a reduction in the number of disputes between taxpayers and tax authorities in this respect.
Natalia Szymocha, Tax Consultant, ATA Tax Sp. z o.o.
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