This article answers the following questions:

• Can human and technical resources be used both to provide and receive the same services?
• How can services ancillary to manufacturing services have an impact on the constitution of a fixed establishment?

On 13 June 2024 the Court of Justice of the European Union issued another judgment on the matter of fixed establishment (FE) for VAT purposes. As it stems from the reasoning of the Court, the fact that two companies belong to the same group and are bound by a contract for the provision of services does not lead to the constitution of a fixed establishment in the Member State in which the taxpayer uses the services of a related entity.

Case C-533/22: Can a contract for the provision of services lead to the constitution of a FE?

The case concerns Adient Ltd & Co. KG, a German company belonging to the Adient group which operates in the automotive industry. Adient Germany entered into a contract with the Romanian company from the group SC Adient Automotive România SRL for the provision of a comprehensive service consisting of both the manufacturing and assembly of upholstery elements as well as ancillary and administrative services. The Romanian company provided the service in its two establishments in Romania in which goods were manufactured for the German company.

Following a tax inspection, the Romanian tax authority found that the German company had technical and human resources in Romania through the Romanian branches. The authority considered that the German company had permanent human resources by means of the Romanian employees on the following grounds:

• in the course of performing their duties and responsibilities, the employees of the quality department of the Romanian company communicated with the customers and suppliers of the German company,
• while carrying out their activities, the employees of the Romanian company represented the German company vis-à-vis third parties,
• the employees were involved in organising and performing the annual stocktaking of assets belonging to the German company, assigning a monetary value to the latter, and in audits requested by its customers. 

The Romanian tax authority decided that these facts were sufficient for Adient Germany to have a fixed establishment for VAT purposes in Romania. 

The CJEU considered that a fixed establishment for VAT purposes in Romania would not be constituted for Adient Germany

It may be concluded from the judgment of the CJEU that FE will not be constitued solely from the fact that both companies belong to the same group and are bound by a contract for the provision of services.

In addition, the fact that the company which receives the manufacturing services provided by a related entity has in the Member State in which the related entity is seated its own structure which intervenes in the supply of the finished products arising from those manufacturing services does not prejudge the existence of FE. Therefore, the fact that Adient Germany supplied goods in Romania was irrelevant.

The Court pointed out that FE will not be constituted if the technical and human resources which are used by the company receiving the services provided by a related entity are not distinct from those by which the services are supplied to it or if those human and technical resources perform only preparatory or auxiliary activities. 

Therefore, the CJEU repeated its established standpoint that human and technical resources may not be both used to provide and receive the same services. Otherwise, it would turn out that a fixed establishment may be a service provider and service receiver at the same time, which is impossible. The CJEU also pointed out to the same in its judgment of 7 April 2022 in case C-333/20. 

Furthermore, the CJEU referred to the issue of services ancillary to manufacturing services. In the Court's assessment, the activities defined in the request, i.e. the taking delivery, management or inspection of the raw materials and finished products, quality control support or the placing of orders for the dispatch of the finished products, constitute preparatory or auxiliary activities in relation to the manufacturing activity carried out by Adient Romania.

This judgment of the CJEU has been the third one since the judgment in the Dong Yang case of 2020 (C 547/18) on determining whether the use of the services of a related entity leads to the constitution of a fixed establishment. The latest advantageous judgment of the European Court will undoubtedly contribute to the enhancement of legal certainty for the taxpayers affected by the case in question.