29 June 2020
In the Dong Yang Electronics case (C-547/18) the Court of Justice has clarified whether a subsidiary can for VAT purposes qualify as a fixed establishment of its parent company.
While it was certainly not the first time the Court was asked whether one company can for VAT purposes qualify as a fixed establishment of another company – think of the cases DFDS (C-260/95) or Welmory (C-605/12) case – there were a number of differences with the previous cases. Unlike in the Welmory case, the case now specifically concerned the question whether a subsidiary could qualify as a fixed establishment of its parent company. And contrary to the DFDS case, the question related to the qualification as ‘purchase’ fixed establishment in the sense of art 11 of the VAT Implementing Regulation. The qualification as ‘purchase’ fixed establishment can be relevant in order to determine where a service in the sense of art 44 of the VAT Directive is deemed to take place.
The fact that a company would qualify as a fixed establishment of another company, implies that both companies would qualify as one VAT taxable person. In principle, this is only possible if both companies are part of a VAT group.
The ECJ therefore reiterated that it is as a principle not obvious to qualify a subsidiary for VAT purposes as a fixed establishment of the parent company. Nevertheless, the Court does not rule out this possibility in certain exceptional circumstances. Ultimately, the economic and commercial reality is a fundamental criterium that has to be taken into account for the application of VAT. Therefore, not only the legal status of the entity concerned, but also the economic and commercial reality must be taken into account in order to verify whether the conditions of art 11 of the VAT Implementing Regulation are met in order to qualify as ‘purchase’ fixed establishment.
Article 22 of the VAT Implementing Regulation sets out a number of criteria that the service provider has to take into account to determine the customer’s fixed establishment to which the service is supplied.
In case it would not be possible to identify the customer’s fixed establishment on the basis of these criteria, the service provider may legitimately assume that the services are provided at the place where the customer has established his business. Consequently, the service provider is not obliged to verify the contractual relations between the parent company and its subsidiary to assess whether the subsidiary may qualify as fixed establishment of the parent.