The recent judgment of the Court of Justice of the European Union (CJEU) of 13 June 2024, Adient Ltd & Co. KG, C-533/22, once again clarifies a key issue in indirect taxation: the definition and limits of the concept of “fixed establishment” for VAT purposes.
The dispute arose because the Romanian tax administration considered that Adient Germany had a fixed establishment in Romania as a result of the activities carried out by its subsidiary, Adient Automotive Romania SRL.
In the proceedings, the Romanian authorities state that the services provided by Adient Romania “on behalf of” and “for the benefit of” Adient Germany constitute a fixed establishment of the German company in Romania, thus affecting the place of taxation for VAT purposes.
The pronouncement of the CJEU in this judgment is in line with prior pronouncements, including Berlin Chemie A.Menarini, C-333/20, or Cabot Plastics Belgium, C-232/22. In all these cases, the CJEU sets out the key points to be examined in order to determine whether there is a fixed establishment:
Durability and adequacy of resources: Human and technical resources do not necessarily have to be owned by the company, but they must be at its disposal as if they were its own, through contracts or leases. This means that the resources, although not owned, must be sufficient to carry out the activities as usual.
Distinction between provision of services and supply of goods: The CJEU emphasises that if the German company does not use the services of the Romanian company to supply goods or services to customers in Romania, it cannot be considered to have a fixed establishment there.
Contracts within a group of companies: A fixed establishment is not established merely because the companies belong to the same group or are linked by a service contract. It must be demonstrated that the human and technical resources in the Member State concerned are sufficient and that they are not merely used for auxiliary or preparatory activities.
Therefore, the CJEU again concludes that in order for a subsidiary to be considered to have a fixed establishment of its parent company, it must have a structure that is sufficiently stable and suitable to receive and use the services provided by its parent company for the benefit of its own economic activity. It is not sufficient that there is a subsidiary in the territory, that both companies belong to the same group, or that there is an exclusive service contract to automatically determine a fixed establishment of the other group company. The subsidiary is a fixed establishment only if it is proved that the company providing the services does not act on its own account or use its own resources but is dependent on the structure and resources of the subsidiary for the provision of those services.
