During a recent presentation on the nuanced concept of “Fixed Establishment” (FE) in EU VAT law, a participant posed a seemingly simple question: “Isn’t fixed establishment always a matter of permanence and whether the site has sufficient human and technical resources? Why has this been such a contentious issue, often reaching the courts?”

It is a fair question. Article 11 of the VAT Implementing Regulation (No. 282/2011) defines an FE as a place with a sufficient degree of permanence and an appropriate structure in terms of human and technical resources. On paper, this seems straightforward. In practice, however, the application is far from simple.

The grey area arises from interpretation. The Court of Justice of the European Union (CJEU) has spent decades clarifying what “sufficient” and “appropriate” really mean. Several landmark cases illustrate why FE continues to provoke discussion and careful analysis.

In the Titanium case (C-931/19), a Jersey company owned property in Austria but outsourced its management. The CJEU held that no FE existed because the absence of the company’s own staff meant it did not have effective control, despite having technical resources on-site.

Similarly, Berlin Chemie (C-333/20) involved a German parent company and its Romanian subsidiary. The subsidiary’s staff and equipment were dedicated to the parent but not at its direct disposal. The Court concluded that control and integration, not mere exclusivity, determine FE status.

Welmory (C-605/12) introduced the idea that an FE can exist on the recipient’s side. Services received in another Member State may create an FE if the recipient has resources under its effective control. In this instance, no FE was established, but the case underscored the need to assess substance over form.

The Dong Yang case (C-547/18) provided clarity for suppliers, ruling they are not obliged to investigate whether a customer’s subsidiary constitutes a parent’s FE. Unless explicitly informed, suppliers can rely on the information provided, offering much-needed certainty.

Other notable rulings include Skandia, FCE Bank, and WebMindLicenses. Skandia (C-7/13) treated a branch as an FE for VAT purposes, whereas FCE Bank (2006) confirmed that a company’s own branch does not constitute a separate taxable person for internal transactions. WebMindLicenses (C-419/14) highlighted that substance, not form, drives VAT treatment, particularly in cases of potential abuse.

These cases illustrate that determining FE is far more than a box-ticking exercise. It is a factual, substance-over-form assessment. Misinterpretation can lead to double taxation, denied refunds, or unexpected VAT liabilities. Conversely, a clear understanding of the nuances allows for legitimate planning, whether to avoid creating an FE or to structure one strategically.

In conclusion, FE is about permanence and resources, but it is equally about control, independence, and economic reality. That is why it remains a complex and highly relevant issue in EU VAT practice.
 

Article Written by Kenneth Cremona, Senior Manager – Indirect Tax Advisory & Compliance