No VAT fixed establishment in the Berlin Chemie case

The decisive question of the Berlin Chemie case is the place of supply of the services, which is determined by the assessment whether BC Germany has a fixed establishment through BC Romania. Under Article 44 of the VAT Directive 2006/112/EC, the place of supply of services to a taxable person is the place of establishment of its business, unless the services are provided to  its fixed establishment elsewhere. In the latter case, the place of supply of the services is the location of that fixed establishment. Based on Article 11 of Implementing Regulation No 282/2011, a fixed establishment is an establishment characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs. Based on this legal context, the Romanian court raised questions to the CJEU about the interpretation of fixed establishment in the Berlin Chemie case.

In its judgement, the CJEU considered that, while it is not necessary for a taxable person to own the human and technical resources for the existence of a fixed establishment, it is however necessary for that person to be able to dispose of those human and technical resources as if these were its own (see par. 41 of Berlin Chemie C-333/20). Furthermore, the CJEU pointed out that a fixed establishment must also be able to receive the services provided to it and use them for its business. In casu, the argumentation of the Romanian tax authorities comes down to the fact that the resources used by the Romanian company to render the services are the same resources as those used by the German company to receive the services. However, the same means cannot be used both to provide and receive the same services (see par. 54 of Berlin Chemie C-333/20). As a result, if the national court reaffirms the facts, BC Germany does not have a fixed establishment in Romania which enables it to receive the services there and use these for its business activities of selling and supplying pharmaceutical products (see par. 55-56 of Berlin Chemie C-333/20). In general, the CJEU finally concluded that a company established in a Member State does not have a fixed establishment in another Member State on the ground that it has a subsidiary there which provides it with human and technical resources based on contracts under which the subsidiary provides it, on an exclusive basis, with marketing, regulatory, advertising and representation services which are likely to have a direct impact on its volume of sales. This conclusion is reassuring for many VAT taxable persons as it sets certain constrains to assessments about the existence of fixed establishments in practice.

The VAT-concept of fixed establishment triggers disputes also in Belgium. Last year, the Court of Appeal of Liège delivered a judgement (2020/RG/765 of 22 October 2021) in which it concluded that a Slovakian company had a fixed establishment in Belgium trough three affiliated companies in Belgium and the services provided by the Slovakian company to the Belgian companies were subject to Belgian VAT. 

Earlier, the Court of First Instance of Liège ruled in another case concerning the existence of a fixed establishment ( 18/1759/A of 14 January 2020 ). This case concerned a Belgian company which performed toll manufacturing services exclusively for an affiliated Swiss company. The court concluded that the Swiss company had a fixed establishment in Belgium through the Belgian company and the tolling services were provided to this fixed establishment. Consequently, the place of supply of the tolling services was in Belgium and Belgian VAT was due. This judgement was appealed, and the case is in process at the Court of Appeal of Liège.

At the same time, the Belgian VAT Authorities are in the process of reviewing the current VAT guidance on fixed establishments. We are hopeful that the aspects outlined in the Berlin Chemie judgement will help to provide more certainty to the interpretation of fixed establishment in the new guidelines.

The Berlin Chemie judgement is an interesting decision in the series of judgements which contribute to the evolution of the VAT-concept of fixed establishment (e.g. Titanium C-931/19; Welmory C-605/12). In practice, however, uncertainties remain as these judgements are embedded in the specific facts and circumstances of each case, and the assessment of a fixed establishment remains relatively subjective depending on the interpretation of these facts and circumstances.

In light of the above, we advise you to verify the possibility of a fixed establishment in your business operations and consider the potential implications for your VAT position. This is important in the context of your VAT compliance and risk management because a dispute with the VAT Authorities on this matter can have serious adverse financial implications. Therefore, the concept of fixed establishment needs to be assessed with due care on a case-by-case basis. If you have any question in this regard, feel free to contact us and we are happy to assist you.