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fixed establishment

VAT fixed establishment – new EU jurisprudence

The case concerns a company established in Switzerland (ie. Cabot Switzerland) active in selling carbon-based products and which has a toll manufaturing agreement in place with a Begian-based entity of the same group (ie. Cabot Plastics).

Both entities are linked financially through holding structures but remain independent legal entities.

Under the toll manufacturing agreement, Cabot Plastics stores the raw materials owned by Cabot Switzerland, processes them into products used for the manufacturing of plastics and stores end products until these are sold by Cabot Swizerland. Cabot Switzerland is therefore VAT registered in Belgium taken into account purchase of raw materials and sale of end products from Belgium (to BE/UE/non-UE customers).

For the processing of the raw materials into products used for the manufacturing of palstics, Clabot Plastics exclusively uses its own equipment and resources. Cabot Plastics’ turnover isalmost entirely generated by these services provided to Cabot Switzerland.

Besides the storage of raw materials, processing services and the storage of the end product, Cabot Plastics also provides extra services to Cabot Switzerland. These services include advice on optimising the manufacturing process, providing both internal and external technical inspections, disclosing resuts to Cabot Switzerland and managing requirements for other production units.

On 31 January 2012, the Ruling Commission decided that the combination of services provided by Cabot Plastics to Cabot Switzerland did not result in the latter company having a fixed establishment for income tax purposes in Belgium. However, further to a VAT inspection concluded in 2017, the VAT Authorities took the view that Clabot Switzerland had to be considered as being fixed established for VAT purposes. It resulted from that viewpoint that Cabot Plastics should have charged Belgian VAT on the toll manfuctaring services invoiced to Cabot Switzerland while it considered till then the services to take place in Switzerland according to the main B2B place of supply rule of sercvices (and therefore issued corrsponding invoices without VAT).

As a reminder, a fixed establishment for the purpose of the place of supply rules is defined under article 11, 1. of the Regulation 282/2011 as “any establishment, other than the place of establishment of a business referred to in Article 10 of this Regulation, 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”.

The Belgian VAT Authorities argued their viewpoint on the fact that the production plant, the storage facilities and the distribution center are only being used for services provided to Cabot Switzerland. In other words, and although these technical resources belong to Cabot Plastics, they must regarded are being made available to Cabot Switzerland under the toll manufacturing agreement and are used exclusively for the benefit and under the direction of Cabot Switzerland, so that Cabot Switzerland has free use of that equipment.

Other than these technical resources, the Belgian VAT Authorities also claim that the human resources (operational staff of Cabot Plastics) are only used by Cabot Switzerland for the purpose of selling their finished products. Thanks to the services provided by Cabot Plastics, Cabot Switzerland is able to sell its products from their fixed establishment located in Belgium.

Lastly, according to the Belgian VAT Authorities, the agremeent between the two companies ensure that there is a sufficient degree of permanence making it a fixed establishment.

In this context, the Court of Appel of Liège decided to question the ECJ on whether a foreign company can be deemed to have a suitable structure in terms of resources where those resources belong to the group company providing services but are used (almost) exclusively to provide the services to the foreign company.

According to the ECJ (as this was held already in previous Court case), the same means cannot be used both to provide and receive the same services. From the facts of this case, it comes furthermore out that the resources Cabot Plastics uses to provide the services to Cabot Switzerland cannot be distinguished from the resources Cabot Switzerland uses to pruchase the services from Cabot Plastics. As a result, these technical and human resources cannot constitute a fixed establishment of the company receiving the same services.

As a conclusion, the ECJ held in this case that “a taxable person receiving services, whose business is established outside the European Union, does not have a fixed establishment in the Member State in which the provider of the services concerned – which is legally independent from that recipient – is established, where that recipient does not have a suitable structure in terms of human and technical resources capable of constituting that fixed establishment, even where the taxable person providing the services provides to that taxable person receiving services, pursuant to an exclusive contractual undertaking, tolling services and a series of ancillary or additional services, contributing to the business of that taxable person receiving services in that Member State”.