VAT: Place of belonging. The Berlin Chemie A Menarini case

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The place of belonging of a business or other person is an important tenet of the tax. I have considered this issue at length here and recent case law here.

A recent CJEU case involved a situation where a business had a registered office in one country and, potentially (hence the appeal) a fixed establishment in another.

Background

“Berlin” used a “third party” to receive certain services. Does this entry represent a fixed establishment for Berlin if it has a sufficient degree of permanence and a suitable structure in terms of technical and human resources? If yes, is it is necessary for those human and technical resources to belong to the company receiving the services or whether it is sufficient for that company to have immediate and permanent access to such resources through a related company, of which it is major shareholder?

Technical

The wording of Article 44 of the VAT Directive and Article 11(1) of Implementing Regulation No 282/2011 do not provide any details as to whether human and technical resources must belong to the company that receives the services.

Decision

The CEUJ ruled that, simple control or ownership, of another entity is insufficient to create a fixed establishment for VAT purposes. Consequently, a third party location does not inevitably represent a fixed establishment by dint of control/ownership.

Having made that comment, the court impressed that the decision should be made “in the context of the economic and commercial reality”.

The analysis of the place of belonging should recognise that it is not necessary for the fixed establishment to own the resources, but there should be control over these resources in the same way as an “owner”.  A fixed establishment is characterised by a suitable structure which enables a business to receive and use services supplied to them for their own needs and not by the decision power of a certain structure that businesses have put in place.

Commentary

Although an EU case, it could impact UK businesses who make supplies to EU recipients and particularly, if there is a “network” of offices or business locations in various EU Member States. Overseas suppliers to (potentially) UK business with various business premises and structures will need to recognise this ruling in order to establish the place of supply (and hence what country’s VAT and at what rate to apply).

This decision provides some helpful clarity, which may be summarised as: In principle, a subsidiary does not always create a fixed establishment.