CJEU Issues New Ruling on VAT Fixed Establishments

Court: Court of Justice of the European Union (CJEU)

Case: C-533/22 (SC Adient Ltd & Co. KG)

The CJEU has issued a significant decision on VAT and the determination of fixed establishments within group companies. This ruling is the fifth on this topic since the 2020 decision in the Dong Yang Electronics case (C-547/18), showing the court's ongoing effort to clarify VAT rules for multinational companies.

Definition:

A fixed establishment refers to a permanent place of business that has the human and technical resources necessary to provide or receive services on a continual basis. It is a concept used in VAT law to determine the place of supply for taxation purposes. A fixed establishment is distinct from a company’s principal place of business or headquarters and includes branches, offices, or other physical locations where significant business activities occur.

Key Takeaways:

1. Group Affiliation Not Sufficient for Fixed Establishment: Belonging to the same corporate group or having contractual agreements does not automatically create a fixed establishment for VAT purposes.

2. Supply of Goods Not a Determining Factor: The subsequent supply of goods and related operations do not affect whether there is a fixed establishment for receiving services.

3. Shared Resources Don't Create Fixed Establishments: There is no fixed establishment if the same human and technical resources are used to provide and receive services or are only used for preparatory or auxiliary tasks.

Practical Steps for Startups:

1. Understand fixed establishment criteria: Learn what counts as a fixed establishment to avoid VAT mistakes/fines and ensure your branches in other countries meet the fixed establishment rules for VAT.

2. Group Affiliation is Not Enough: Don’t assume that being part of a corporate group automatically creates a fixed establishment. Even if your startup has a parent company abroad, this doesn’t create a fixed establishment by itself.

3. Focus on Service Provision: Pay attention to how your services are provided and received. VAT rules depend on continuous service activities, not on shared resources.

4. Separate Physical Locations: Ensure that important business activities happen in separate physical locations - Correctly identifying these locations is crucial for VAT purposes. Consider your remote office with significant operations separately from the main office.