On numerous occasions in recent years the European Court of Justice (ECJ) had to decide whether VAT fixed establishments were present within corporate group structures. In each case, the ECJ ruled that in principle a group company does not constitute a VAT fixed establishment of another foreign group company. The ECJ reaffirmed this position in its most recent ruling in the Adient case (C‑533/22).
Situation
Adient Germany engaged Adient Romania as a toll manufacturer to produce automotive products. The ownership of the raw materials and finished products remained with Adient Germany. Adient Germany sold the finished products to customers. Adient Romania manufactured and assembled the products for Adient Germany. Adient Romania also rendered auxiliary services to Adient Germany. These auxiliary services included stock management and support with the shipping of finished products.
The Romanian tax authorities took the position that Adient Romania was a VAT fixed establishment of Adient Germany. Therefore, according to the Romanian tax authorities, Adient Romania rendered its services to a local Romanian branch of Adient Germany instead of to Adient's German head office. The services would then attract Romanian VAT instead of German VAT.
Judgement
The ECJ ruled that Adient Romania is not a VAT fixed establishment of Adient Germany. The most important considerations are the following:
- The employees and technical means of Adient Romania cannot be attributed to Adient Germany, even if those resources are in fact used entirely for Adient Germany under an exclusive service agreement.
- A fixed establishment could only be present, if under the agreement the service provider does not remain responsible for its resources and thus the recipient of the services would dispose of these resources as its own.
- The involvement of Adient Romania with the supplies of finished products by Adient Germany is not relevant for the fixed establishment analysis if only preparatory or auxiliary services are rendered via the available resources.
Our views
Once again and thus not very surprising, the ECJ decides that the mere fact that a local group company renders services to a foreign group company does not constitute a fixed establishment. This ruling should put an end to the broad interpretation of the 'VAT fixed establishment' concept as applied by some tax authorities in corporate group structures. In particular in situations where parties are entitled to fully deduct VAT, recognizing a fixed establishment does not serve a fiscal rational purpose. The ruling should provide certainty for multinationals operating with use of toll manufacturers and other corporate structures with (group) auxiliary service providers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.