On 29 June 2023, the Court of Justice of the European Union (hereafter: 'CJEU') looked into the issue of a fixed establishment (en: 'fixed establishment', hereafter: 'FE') on the occasion of Case C-232/22, initiated by a Belgian Court of Appeal with a request for a preliminary ruling.
In its ruling, the CJEU stated that the provision of manufacturing services on entrusted materials (so-called toll manufacturing) to a taxpayer from another country does not prejudge the creation of FE for the purchaser.
The case concerned the Belgian company Cabot Plastics Belgium SA (hereinafter: 'Cabot Plastics'), which provided toll manufacturing and other ancillary services to a group company, Cabot Switzerland GmbH (hereinafter: 'Cabot Switzerland'). The companies were not legally dependent on each other, but were linked by capital ties.
Cabot Plastics contractually undertook to use its equipment and personnel on an exclusive basis to manufacture goods for and under the direction of Cabot Switzerland. Sales of the manufactured goods were taxed in Belgium. In addition, Cabot Plastics provided Cabot Switzerland with a number of ancillary services, such as, inter alia: storing and managing products and raw materials, carrying out technical inspections and evaluations, or providing support in activities aimed at improving its production processes and planning its activities. These ancillary services also included support in the sale of manufactured products.
Cabot Plastics treated the services provided as taxable in the buyer's country of residence, Switzerland. However, following a tax audit, the Belgian tax authorities questioned this approach and considered that Cabot Switzerland had FE in Belgium and therefore the place of supply, and consequently of taxation of the services in question, was Belgian territory.
Position of the ECJ
The essence of the case concerned, in essence, whether Article 44 of Council Directive 2006/112/EC and Article 11 of Council Regulation (EU) No 282/2011 of 15 March 2011 must be interpreted as meaning that Cabot Switzerland established outside the European Union must be deemed to have FE in the Member State in which a legally separate service provider, i.e. Cabot Plastics, is established, if the human and technical resources of the latter are provided to Cabot Switzerland on an exclusive basis and under its direction.
The CJEU found that Cabot Switzerland does not have an FE in Belgium because it does not have an adequate structure in terms of human and technical resources there. According to the CJEU, it is insufficient in this respect that Cabot Plastics performs for Cabot Switzerland, in the performance of an exclusive contractual obligation, services in the form of production from entrusted materials and a number of ancillary services that contribute to Cabot Switzerland's economic activity in Belgium.
In justifying its position, the CJEU recalled that in order to identify an FE, it is necessary to fulfil the criterion of constancy and an adequate structure in terms of personnel and technical facilities to enable it to receive and use the services provided for its own needs of that FE.
In its judgment, it referred to the theses of the judgment of Berlin Chemie A. Menarini (C-333/20), from which it follows that, in order to be able to speak of FE for VAT purposes, the taxpayer must be entitled to manage the human and technical resources of another entity as if they belonged to itself (e.g. on the basis of service or rental contracts).
Furthermore, the CJEU also pointed out that it is necessary in this respect that Cabot Switzerland has immediate and permanent access to Cabot Plastics' resources as if they belonged to it. However, in the present case, it was still Cabot Plastic as a service provider that remained responsible for its own facilities and provided services at its own risk.
The CJEU also emphasised that the mere fact that two entities belong to the same capital group does not necessarily mean that an FE has been created. Thus, the qualification of an FE cannot depend solely on the fact that a company has another subsidiary in a Member State.
Moreover, the CJEU has stated that the same facilities cannot be used simultaneously for the provision and receipt of the same services. In other words, as a general rule, one entity should not be considered the FE of another entity, at least as far as the services it provides to that other entity are concerned.
It also pointed out that the fact that Cabot Plastics provided Cabot Switzerland with the aforementioned ancillary services, thus facilitating its economic activities such as the sale of products made from entrusted materials, did not affect the question of the creation of FE.
According to the Court, it is also crucial to distinguish between the provision of services consisting of production from entrusted materials provided by Cabot Plastics and the sales services carried out by Cabot Switzerland and that it was Cabot Plastic that remained responsible for its resources and provided the services at its own risk.
Taking these arguments into account, the Court concluded that Article 44 of the VAT Directive and Article 11(1) of Implementing Regulation No 282/2011 must be interpreted as meaning that a company which does not have its own human and technical resources abroad and therefore uses resources belonging to an independent entity of the same group located in a second country does not have FE there for VAT purposes.
