Concept of a “fixed establishment” and its activity in an EU Member State other than the one in which the taxable person is established

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Concept of a “fixed establishment” and its activity in an EU Member State other than the one in which the taxable person is established

29 Oct 2024

Judgment of the European Court of Justice no. C-533/22 dated 13 June 2024, Adient Germany case

By Mario Spera - Principal of Bernoni Grant Thornton

1. Foreword

With judgment no. C-533/22 dated 13 June 2024, Adient Germany case, the European Court of Justice (hereinafter, also CJEU) analyses, one more time, the concept of fixed establishment, in order to determine even more precisely when a certain transaction can be referred to such entity or to the taxable person established in another EU Member State (where the fixed establishment would derive from). To this end, it referred, in substance, to the provisions of Council Implementing Regulation (EU) no. 282/2011, which, under art. 11, identifies a “fixed establishment” as an “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 provide the services which it supplies”. This concept is strengthened in art. 53, which underlines the requirement for this entity to directly intervene in the supply of goods or services. However, the applicable regulations exclude the existence of such intervention if “the resources of the fixed establishment are only used for administrative support tasks” (see art. 53, para. 2, Sentence 2, of Implementing Regulation no. 282/2011).

Given the above, the question under analysis arose with reference to the Romanian regulation and concerns two companies belonging to the same Adient group (operating in the automotive industry and specialized, in particular, in the manufacture and marketing of seats and other components for motor vehicles), established in two different Member States: “Adient Germany” and “Adient Romania” (more specifically, “SC Adient Automotive România SRL”). 

2. The case analysed by the CJEU

The Romanian company provides services on raw materials, which are supplied by the German company, consisting in manufacturing of upholstery components for motor vehicles’ seats and ancillary services. 

Adient Germany has a VAT number in Romania, which it uses “for its purchases of goods in that Member State” and for the “supply to its customers of the products manufactured by Adient Romania”. 

The services provided to it by the Romanian company were invoiced to its German VAT number, without applying any tax, since they were considered as general service provisions, being relevant for tax purposes in Germany.

On the other hand, the Romanian tax administration believed that the establishment of the German company existing in Romania should be considered as a (hidden) fixed establishment and, therefore, that transactions carried out by such establishment should be taxed for VAT purposes in Romania. 

The dispute, arisen from the different position assumed by the parties and by the tax administration, led the Regional Court of Argeş to stay the proceedings and to refer to the Court of Justice for a preliminary ruling on the interpretation of articles 44 and 192-bis of VAT Directive 2006/112/EC and of articles 10, 11 and 53 of Council Implementing Regulation (EU) no. 282/2011, mainly with the aim of obtaining “a series of clarifications concerning the criteria for classifying an entity as a fixed establishment”, considering that “the tax administration found that there was a fixed establishment by taking account of the fact that the two companies concerned belonged to the same group and of the contract for the provision of services linking those two companies”, as well as taking account of “the human and technical resources involved in Romania in the supply of the goods downstream by that fixed establishment” (see point 34 of the judgment under analysis). 

3. Analysis of the Court of Justice

The question analysed by the CJEU, although being related to assessing the presence (or absence) of a fixed establishment, concerns different aspects of this matter and can be summarized as follows.

Firstly, it must be considered that a company whose business activity is established in another Member State can have a fixed establishment in the Member State in which it receives certain services, "solely because the two companies belong to the same group and those companies are bound as between themselves by a contract for the provision of services”. To this regard, general service provisions are considered as rendered in the place where the receiving taxable person has established its economic activity, while the connection between such transactions with the presence of a fixed establishment is only secondary. However, this connection requires the presence of “a sufficiently permanent and suitable structure to enable it to receive the services concerned there and to use them for its business” (see point 42).

In particular, the fact that a subsidiary established in another Member State provides services to the parent company does not allow considering such subsidiary as a fixed establishment, nor can the existence of a fixed establishment be determined by the fact that both companies belong to the same group (see point 45), or by the presence of an exclusive contract for the provision of services (see point 46). In fact, in these cases, “the service provider fulfils the obligations arising out of that contract in his or her own name and economic interests as an independent contract partner, and not as a controlled component of the other contracting party”(point 50 of the Opinion of Advocate general).

Therefore, “a company subject to VAT having its business in one Member State, which receives services provided by a company established in another Member State, cannot be regarded as having a fixed establishment in that other Member State, for the purposes of determining the place of supply of those services, solely because the two companies belong to the same group or those companies are bound as between themselves by a contract for the provision of services” (see point 54).

The second matter analysed by the CJEU concerns the question on whether “a company subject to VAT having its business in one Member State, which receives manufacturing services supplied by a company established in another Member State, may be regarded as having a fixed establishment in that other Member State, for the purposes of determining the place of supply of services, where, first, it has a structure there which intervenes in the supply of the finished products resulting from those manufacturing services and, second, those supply transactions are carried out for the most part outside that other Member State and those transactions carried out there are subject to VAT” (point 55).

The last aspect analysed by the CJEU concerns the fact that a company established (i.e., whose business activity is established) in a Member State, which receives services from a company established in another Member State can lead to the identification of a fixed establishment, where this has the “technical and human resources by which that second company provides the services that it supplies or of the resources which are used for the administrative activities linked to those supplies“ (see point 75).

In the case at issue, it must be considered that the Romanian tax administration, which denied the presence of a fixed establishment, underlined “that the human and technical resources involved in the supply of manufacturing services belonged to Adient Romania and not to Adient Germany, which used the human and technical resources involved in the supply of the goods downstream” (see point 76).

Moreover, the CJEU underlines “that 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” (see point 77). This implies that, in order to ascertain the existence of a fixed establishment, the human and technical means of the company receiving the services must be distinguished from the human and technical means involved in the activity of the company that provides the services.

4. Conclusions by the CJEU

Based on the reasoning developed in the previous paragraph, the Court of Justice provides a series of useful indications for recognising whether or not there is a fixed establishment.

The existence of a fixed establishment must preliminarily be excluded in case “the two companies solely belong to the same group or those companies are bound as between themselves by a contract for the provision of services”;  specifically “a company subject to VAT having its business in one Member State, which receives services provided by a company established in another Member State, cannot be regarded as having a fixed establishment in that other Member State, for the purposes of determining the place of supply of those services” (see point 54).

Moreover, to identify the presence of a fixed establishment in the Member State from which the services are provided, ascertaining that such entity participates in the sale of finished products (deriving from processing) in other countries, or that sales are subject to VAT in the country in which processing is carried out is not sufficient. In any case, the presence of a fixed establishment cannot be deemed as useful to identify the place in which service provisions are considered as carried out (country in which the receiving company is established).

Lastly, with reference to the last question, the European Court of Justice concluded that “a company subject to VAT having its business in one Member State, which receives services provided by a company established in another Member State, does not have a fixed establishment in that other Member State if its technical and human resources in that Member State are not distinct from those by which the services are supplied to it or if those human and technical resources perform only preparatory or auxiliary activities” (see point 81).