No fixed establishment in the Berlin Chemie case according to Court of Justice of the EU
On 7 April 2022, the Court of Justice of the EU issued its decision in the Berlin Chemie A. Menarini SRL case (C-333/20). This concerns another judgment in a series of cases on the notion fixed establishment for VAT purposes.
The Court of Justice had to assess whether a company, in order to be regarded as having a fixed establishment in the Member State in which it carries out supplies, it is necessary for the human and technical resources employed by that company in the territory of that Member State to belong to it. Or, is it sufficient for that company to have “immediate and permanent access” to such human and technical recourses through another affiliated company which it controls since it holds the majority of its shares?
Berlin Chemie A. Menarini SRL, established in Romania, performs services for its parent company Berlin Chemie AG, established in Germany. Both companies concluded a marketing, advertising and regulatory services contract. Under this contract, Berlin Chemie A. Menarini SRL agreed to do all the marketing required to actively promote Berlin Chemie AG its products in Romania, in accordance with the strategies and budget established and developed by Berlin Chemie AG. The contract covers a wide range of services.
In return for its services, Berlin Chemie A. Menarini SRL, obtained a monthly fee, calculated based on the incurred expenses + 7,5%. On the invoice issued for these services, Berlin Chemie A. Menarini SRL applied the reverse charge mechanism. The Romanian VAT authorities nevertheless took the position that the services in question should be taxable in Romania (instead of Germany) as Berlin Chemie AG would have sufficient technical and human resources to have a fixed establishment in Romania.
The Court has concluded that Berlin Chemie AG does not dispose of a fixed establishment, through its affiliated company, in Romania.
In our view, there are a number of elements that are important to take away from this judgment.
A first element is that it would not be a requirement for a taxable person to own the human or technical resources itself. This seems to contradict with the Titanium case of last year based on which at least the human resources would have to be the “own” human resources. It would be sufficient to have the right to dispose of those human and technical resources in the same way as if they were its own. This is an element that VAT authorities – unfortunately – may want to rely upon to continue identifying fixed establishments through group companies or third parties.
A second element, although not new, is that the existence of a fixed establishment does not depend on the decisions that the “structure” is authorized to take.
A third element, which will be welcomed by businesses, is that the same means cannot be used both to provide and receive the same services. This entails that Berlin Chemie AG cannot possess of a fixed establishment through its affiliated company as it would mean that that affiliated company (the fixed establishment) is deemed to render services to itself. This is an important point for other set ups where the VAT authorities are arguing that a fixed establishment exists, for example for toll manufacturing set ups in Belgium.
It remains to be seen whether the current position taken by the Court will be followed in case of toll manufacturing services, among other in the Cabot Plastics Belgium case (C-232/22) – where a toll manufacturer has been considered as a fixed establishment – which has been referred to the Court of Justice of the EU by the Belgian Court of Appeal in Liège.
Questionnaire
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