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The Court of Justice of the European Union (CJEU) ruled that a subsidiary does not automatically trigger a VAT permanent establishment (PE) or fixed establishment (FE). I would say nothing shocking, considering that no single EU country is making an automatic link between a subsidiary and the existence of a VAT FE!

However, the CJEU added that a subsidiary may trigger a FE. As opposed to the Advocate General, this statement was made without any "explicit" reference to abuse. There is a reference to the DFDS case (C-260/95), but unfortunately without any additional context. Also in the DFDS case, the CJEU did not explicitly rule that the (risk of) abuse was the “only” trigger for making the subsidiary a FE or that the set-up concerned an abusive practice.

The good news is that the CJEU also ruled that the supplier should not investigate the relationship between a subsidiary and the parent company. As this info is not available to the supplier, this info should be disregarded in the FE assessment by the supplier. Although this case concerned third-party invoicing and many discussions in practice concern intercompany transactions, this is still a very welcoming clarification (whereby an unreasonable burden has been avoided).

In my view, the most important part of the judgement is that the CJEU still requires an analysis of the economic and commercial reality (irrespective of legal form) in view of the FE assessment. In the first instance, the use and nature of the activity should be checked (material conditions). If the doubt remains, the supplier can rely on the formal elements of the transaction (recipient mentioned on the invoice/contract/order).

A long-anticipated case, but a disappointing outcome. It seems that the CJEU opted for the safest and most easy solution. Only addressing the queries raised, without providing much-needed and highly anticipated guidance on the FE concept.

The next FE case on our radar is this Austrian referral (C-931/19). A real estate investor who rents property in another EU Member State and uses third-party resources (property management company) to run his business. Hopefully, this case will help to build a better "VAT" working world :-) So stay tuned

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Share Robert Praetzler 5y

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Excellent analysis, I fully agree !

Like Reply 1 Reaction 2 Reactions Nabil H. 5y

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Thanks a lot Mo.

Like Reply 1 Reaction 2 Reactions Gorka Echevarria 5y

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a top in class commentary! Mo, you have a rare capability of explaining complex ideas clearly!

Like Reply 5 Reactions 6 Reactions 🔳Philippe Verclytte 5y

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Thanks Mo. Always interested!

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