EU: Toll manufacturer does not constitute a fixed establishment for VAT purposes (CJEU judgment)

CJEU has held that toll manufacturer cannot be fixed establishment if human and technical resources used to receive services are not distinct

Toll manufacturer does not constitute a fixed establishment for VAT purposes (CJEU)

The Court of Justice of the European Union (CJEU) on June 13, 2024, published its decision in regarding whether a toll manufacturer constitutes a fixed establishment for value added tax (VAT) purposes of a foreign related entity.

The case identifying information is: C-533/22

Under EU law, and according to established CJEU case law, services provided to a taxpayer are taxed where that taxpayer’s business is established. However, if those services are provided to a fixed establishment of the taxpayer located somewhere other than that place, the services are taxable where that fixed establishment is located. For this purpose, a fixed establishment is any establishment, other than the place of establishment of the taxpayer, characterized 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 provided to it for its own need.


The case involves a company established in Germany, and another company within the same group in Romania. On June 1, 2016, the German company entered into a contract with the Romanian company to provide a comprehensive service consisting of both the manufacture and assembly of upholstery components, as well as ancillary and administrative services. The German company purchases the raw material which it sends to the Romanian company for treatment. The German company is the legal owner of the raw materials, semi-finished products, and finished products throughout the treatment process. The Romanian tax authority concluded that the German company- had technical and human resources in Romania through the Romanian company, with the result that it satisfied the conditions for a fixed establishment for VAT purposes in Romania. Consequently, the services rendered to the German company by the Romanian company were subject to VAT in Romania and the Romanian company was required to collect Romanian VAT. The German company argued that the conditions for a fixed establishment in Romania were not satisfied and filed a complaint against the decision of the tax authority.


In line with its case law, the CJEU held that a company receiving services from another company in a different member state cannot be considered to have a fixed establishment in that other member state solely because the two companies belong to the same group or are bound by a contract for the provision of services. The CJEU noted that even though all companies in the group use the same IT and accounting system, and employees of the Romanian company have electronic access to the German company’s accounting system, it does not mean that the German company has the necessary infrastructure in Romania to independently carry out its own operations. The CJEU further stated that the fact that the German company was provided with a storage facility for products and raw materials, while retaining ownership over them, does not infer the existence of such infrastructure. The CJEU emphasized that it is for the referring court to determine whether the activities carried out by the employees of the Romanian company’s branches are directly related to the manufacturing service or are purely administrative in nature.

In addition, the CJEU held that the fact that a company has a structure in another member state that intervenes in the supply of finished products arising from the services it receives, or that those supply transactions are mostly carried out outside that member state and those carried out there are subject to VAT, does not establish that the company has a fixed establishment in that other member state for the purposes of determining the sourcing of services. The existence of a fixed establishment must be determined in relation to the person receiving the services at issue. In the context of the main proceedings, it is necessary to distinguish between the services supplied by the Romanian company to the German company and the sales and supplies of goods resulting from those services which the German company carries out from Romania. These are separate transactions subject to different VAT schemes. To establish the place where the German company receives those supplies of services, it is necessary to identify the place where the human and technical resources that the company uses for that purpose are situated.

Finally, the CJEU clarified that a company does not have a fixed establishment in another 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 resources perform only preparatory or auxiliary activities. In this respect, the CJEU highlighted that the existence of a fixed establishment of the recipient of the services presupposes that it is possible to identify human and technical resources that are distinct from those used by the supplier for the fulfillment of its own services. These resources should be made available to the recipient of those services to ensure that they are received and used in accordance with its own needs. Without such a distinction, the recipient does not have a fixed establishment in the member state of the supplier and cannot, therefore, be regarded as established in that member state.

KPMG observation

The fixed establishment concept has been subject to abundant case law as it has been used by tax authorities as an anti-abuse measure to attract domestic VAT in otherwise cross-border transactions. The existence of a fixed establishment can have significant implications. For instance, taxpayers with fixed establishments in member states with electronic invoicing (e-invoicing) mandates could be dragged into the net of these mandates even though nonresidents are not in scope of these obligations. Therefore, understanding when a company has a fixed establishment is essential for companies operating in EU member states and the recent CJEU case law provides some positive relief for taxpayers.

The CJEU has now repeatedly held that a toll manufacturer cannot be a fixed establishment if the human and technical resources used to receive services are not distinct from those that provide the services. Read TaxNewsFlash

While in earlier case law, the CJEU appeared to broaden the concept of fixed establishment by acknowledging for instance that a related party (C-260/95 (February 20, 1997)) or even a third party could create a fixed establishment for VAT purposes (C-605/12 (October 16, 2014)), in more recent case law, the CJEU appears to be curbing down the efforts by various EU tax authorities to see fixed establishments in related-party transactions. To preemptively address tax authorities’ questions about the existence of a fixed establishment, taxpayers need to carefully identify and track the human and technical resources that exist abroad and what these resources are used for.


For more information, contact a KPMG tax professional:

Philippe Stephanny |



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