CJEU decision regarding fixed establishment for VAT

The Court of Justice of the European Union (‘CJEU’) has issued a decision in the Polish Welmory Sp z.o.o. case involving Polish and Cypriot companies.  The questions revolved around whether the Polish company could treat supplies made to the Cypriot company as outside the scope of Polish VAT (subject to reverse charge VAT in Cyprus) or whether the Cypriot company had a fixed establishment in Poland so Polish VAT was due.

The case did confirm that principles established in previous EU case law still apply in the context of the place where a taxable person receives services (having been decided in cases relating to where a taxable person supplies services from).  In summary, these principles are:

• the primary point of reference for determining the place of supply of services for tax purposes is the place where the relevant taxable person (which under article 44 of the Principal VAT Directive, is now the recipient) has established his business;
• it is only if that place of business does not lead to a rational result or creates a conflict with another Member State that another establishment is to be considered; and

• the term 'fixed establishment' implies a minimum degree of stability derived from the permanent presence of both the human and technical resources necessary for the receipt and use of the services in question on an independent basis.

The Cypriot company had no human or technical resources of its own in Poland, but was making supplies to Polish customers using the resources of its Polish supplier. An issue which was not clarified in the decision was whether use of the supplier’s human and technical resources was enough to give the Cypriot company a fixed establishment in Poland at which it could receive the supplies from the Polish supplier.  It was left to the Polish courts to determine whether the arrangements meant that the Cypriot company had the human and technical resources required to create a fixed establishment in Poland.  The Advocate General’s (‘AG’) opinion had appeared to indicate that the human and technical resources used by a taxable person need not be its own resources in order to create a fixed establishment.

Advisors are highlighting this unresolved issue and suggesting that any structures involving overseas suppliers should be reviewed to consider whether it could be argued that you are making supplies in another EU country using the human and technical resources of your supplier, even if you do not have your own resources in that country.  However, the case did not confirm this would create a fixed establishment and analysis of this decision is at an early stage.  HMRC has yet to issue any response to the decision, and the Polish court still has to decide how to interpret the decision and the AG’s opinion on this aspect of the case.