ECJ C-232/22 (Cabot Plastics Belgium) – Judgment – Toll manufacturing with ancillary services does not lead to Fixed Establishment

On June 29, 2023, the ECJ issued its jusgment in the case C-232/22 (Cabot Plastics Belgium).

Context: Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Article 44 – Place of supply of services – Implementing Regulation (EU) No 282/2011 – Article 11(1) – Provision of services – Point of reference for tax purposes – Concept of ‘fixed establishment’ – Suitable structure in terms of human and technical resources – Ability to receive and use the services for the fixed establishment’s own needs – Provision of tolling services and ancillary services – Exclusive contractual undertaking between a company providing services in a Member State and the company receiving those services established in a third State – Legally independent companies

Articles in the EU VAT Directive 2006/112/EC

Article 44 in EU VAT Directive 2006/112/EC

Article 44
The place of supply of services to a taxable person acting as such shall be the place where that person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the taxable person who receives such services has his permanent address or usually resides.

Article 11 of the EU VAT Implementing Regulation 282/2001

Article 11
1. For the application of Article 44 of Directive 2006/112/EC, a ‘fixed establishment’ shall be any establishment, other than the place of establishment of a business referred to in Article 10 of this Regulation, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs.
2. For the application of the following Articles, a ‘fixed establishment’ shall be any establishment, other than the place of establishment of a business referred to in Article 10 of this Regulation, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which it supplies:
(a) Article 45 of Directive 2006/112/EC;
(b) from 1 January 2013, the second subparagraph of Article 56(2) of Directive 2006/112/EC;
(c) until 31 December 2014, Article 58 of Directive 2006/112/EC;
(d) Article 192a of Directive 2006/112/EC.
3. The fact of having a VAT identification number shall not in itself be sufficient to consider that a taxable person has a fixed establishment.

Facts

Cabot Switzerland GmbH is a company under Swiss law, which has established its place of business in Switzerland. It is identified for VAT purposes in Belgium for its business of selling carbon-based products.
Cabot Switzerland, as the main operating company of the Cabot group for the ‘Europe, Middle East and Africa’ region, concluded a tolling contract with a number of companies, including the Belgian commercial company Cabot Plastics. The latter, although part of the same group, is legally independent of Cabot Switzerland. However, they are linked financially since Cabot Plastics is 99.99% owned by Cabot Holding I GmbH, which is itself 100% owned by Cabot Lux Holdings Sàrl, which also holds the entirety of the shares in Cabot Switzerland.
Pursuant to the tolling agreement concluded on 14 February 2012 (‘the agreement of 14 February 2012’), Cabot Plastics uses exclusively its own equipment to process, for the benefit and under the direction of Cabot Switzerland, raw materials into products used in the manufacture of plastics. The services provided by Cabot Plastics to Cabot Switzerland constitute almost all of its turnover. In accordance with the agreement of 14 February 2012, Cabot Plastics stores on its premises the raw materials purchased by Cabot Switzerland, and then processes them into products used in the manufacture of plastics. It then stores those products before they are sold by Cabot Switzerland from Belgium to various customers on the Belgian market, on the European market or for export. The collection and transportation of the goods from Cabot Plastics’ facilities are carried out either by those customers, or by external hauliers used by Cabot Switzerland.
Cabot Plastics also provides a series of additional services to Cabot Switzerland, in particular, storage of products, including managing products stored in third-party warehouses, making recommendations aimed at optimising the manufacturing process, carrying out internal and external technical checks and assessments, reporting the results to Cabot Switzerland and making deliveries or providing services needed by other production units. In that respect, Cabot Plastics provides comments regarding the operational requirements of its factories, facilitates customs formalities, complies with Cabot Switzerland’s quality control and quality assurance standards and procedures, provides Cabot Switzerland with support for improving the manufacturing processes and the planning of its business, provides it with administrative support in relation to customs and excise duties, acts as official importer on behalf of and at the request of that company and manages packaging equipment. Cabot Plastics carries out those additional activities in accordance with the conditions set out in the agreement.
Cabot Plastics brought proceedings before the Service des décisions anticipées en matière fiscale (Tax Ruling Commission) (SDA) of the Service public fédéral des Finances (Federal Public Service for Finance, Belgium), which, by decision of 31 January 2012, ruling on corporate tax matters, stated that that company’s business did not involve Cabot Switzerland having a fixed establishment in Belgium, for the purposes of Articles 227 to 229 of the Code des impôts sur les revenus (Income Tax Code) and Article 5 of the Convention entre la Confédération suisse et le Royaume de Belgique en vue d’éviter les doubles impositions en matière d’impôts sur le revenu et sur la fortune (Convention between the Swiss Confederation and the Kingdom of Belgium for the avoidance of double taxation in respect of taxes on income and capital), concluded on 28 August 1978.
However, following a tax inspection carried out in 2017, the tax authority came to the view that Cabot Switzerland had a fixed establishment in Belgium for the purposes of the VAT legislation and that, accordingly, the services provided by Cabot Plastics to that company between 2014 and 2016 had to be regarded as taking place in Belgium and subject to VAT in Belgium. A statement of adjustment was sent to Cabot Plastics, which noted its disagreement with that statement.
By decision of 19 December 2017, the tax authority therefore ordered Cabot Plastics to pay EUR 10 609 844.08 in VAT and EUR 1 060 980 in fines, together with statutory interest as from 21 January 2017.
On 30 March 2018, Cabot Plastics brought an action against the decision of 19 December 2017 before the tribunal de première instance de Liège (Court of First Instance, Liège, Belgium). By judgment of 14 January 2020, that court upheld that application in part, holding that Cabot Switzerland had a fixed establishment in Belgium, but annulling that decision as regards the order to pay the fine.
On 11 September 2020, Cabot Plastics brought an appeal against that judgment before the cour d’appel de Liège (Court of Appeal, Liège, Belgium), the referring court. It requests that court to vary that judgment, to find that it is not liable for the VAT imposed on it and to order the Belgian State to reimburse all sums improperly collected or withheld, together with default interest.
Cabot Plastics submits, before the referring court, that the place of supply of the services which it invoiced to Cabot Switzerland was not Belgium, but Switzerland, where Cabot Switzerland has established its place of business.
By a cross-appeal lodged on 15 January 2021, the Belgian State claims that the judgment of the tribunal de première instance de Liège (Court of First Instance, Liège) should be varied as regards the fine imposed on Cabot Plastics. In its view, Cabot Switzerland has a fixed establishment in Belgium, within the premises of Cabot Plastics, with the result that the services provided by Cabot Plastics to Cabot Switzerland are located in that Member State.
First, according to the Belgian State, the technical resources constituting that fixed establishment are the production plants, the distribution centre and the storage areas which belong to Cabot Plastics, but which must be regarded as being made available to Cabot Switzerland under the agreement of 14 February 2012, since that agreement provides that Cabot Plastics’ equipment is to be used exclusively for the benefit and under the direction of Cabot Switzerland, so that Cabot Switzerland has free use of that equipment.
Secondly, as regards the human resources of that fixed establishment, the Belgian State submits that they are made up of the operational staff of Cabot Plastics made available to Cabot Switzerland, which makes it possible for Cabot Switzerland to make sales, in particular, in Belgium. It also notes that such staff provides, in addition to tolling services, additional services that are essential for Cabot Switzerland, such as receiving raw materials, monitoring quality, preparing orders, packaging finished products and taking inventories.
Thirdly, as regards the possibility of receiving and using the services provided for the needs of that establishment specific to Cabot Switzerland, the Belgian State submits that the structure made available to Cabot Switzerland by Cabot Plastics enables it to receive and use the products resulting from the tolling, in order to carry out its own supply of goods in Belgium, from its fixed establishment. Fourthly, according to the Belgian State, that establishment has a sufficient degree of permanence, by reason of the very fact that the agreement of 14 February 2012 was concluded.
The referring court submits that Cabot Switzerland has established its place of business in Switzerland, since its legal registered office and its office premises employing 47 people are located there and that it is in that country that strategic and general policy decisions of that undertaking are taken, various contracts are concluded and its board of directors meets. However, according to the referring court, the fact that Cabot Switzerland’s place of business is in Switzerland does not mean ipso facto that the place of supply of services is located in that State, since Article 44 of the VAT Directive lays down a special rule concerning the place of supply when services are provided to a fixed establishment of the taxable person in a place other than where his or her business is established.
It maintains, moreover, that the Court has not yet ruled on a case sufficiently similar to the present one, capable of dispelling any doubts as to the interpretation to be given to the applicable EU law. It notes, in that respect, first, that Cabot Plastics is a legally separate entity from Cabot Switzerland, of which it is not a subsidiary, and, secondly, that the tax authority regards Cabot Plastics both as a service provider and as constituting the technical and human resources of Cabot Switzerland.
The referring court therefore raises the question whether a taxable person has a suitable structure, in terms of its own resources, constituting its fixed establishment, where those resources belong to the company providing services to it, but, pursuant to a contract concluded between that taxable person and that company, the latter undertakes to use those resources, exclusively or almost exclusively, to provide those services. In particular, since the Court has held that a structure without staff cannot be classified as a ‘fixed establishment’ (judgment of 3 June 2021, Titanium, C‑931/19, EU:C:2021:446), the referring court asks whether, in such circumstances, the staff of the provider of the services concerned, acting as directed by the recipient of the services in accordance with an agreement between those parties, could be regarded as being ‘own’ staff of the recipient of the services.

See also ecer.minbuza.nl

Questions

(1) In the case of services supplied by a taxable person established in a Member State to another taxable person acting as such and whose business is established outside the European Union, while they are separate and legally independent entities but are part of the same group, the service provider undertakes by contract to use its facilities and personnel exclusively for the manufacture of products for the customer and these products are subsequently sold by the customer,giving rise to taxable supplies of goods to which the service provider provides logistical assistance and which take place in the Member State in question, Article 44 of Council Directive 2006/112/EC of 28 November 2006 and Article 11 of Regulation (EU) No 282/ [2011] of the Council of 15 March 2011 be interpreted as meaning that the taxpayer established outside the European Union must be regarded as having a permanent establishment in that Member State?282/[2011] of 15 March 2011 be interpreted as meaning that the taxpayer established outside the European Union must be regarded as having a permanent establishment in that Member State?282/[2011] of 15 March 2011 be interpreted as meaning that the taxpayer established outside the European Union must be regarded as having a permanent establishment in that Member State?
(2) Should Article 44 of Directive 2006/112/EC and Article 11 of Council Regulation (EU) No 282/[2011] of 15 March 2011 laying down measures for the implementation of Directive 2006/112/EC on the common system of value added tax, be interpreted as meaning that a taxable person may have a permanent establishment if the necessary human and technical resources come from his supplier who is legally independent but is part of the same group and who is located there contractually commits to deploy these resources exclusively and for the benefit of that taxpayer?
(3) Should Article 44 of Directive 2006/112/EC and Article 11 of Council Regulation (EU) No 282/[2011] of 15 March 2011 laying down measures for the implementation of Directive 2006/112/EC on the common system of value added tax shall be interpreted as meaning that a taxable person has a permanent establishment in the Member State of his supplier where the latter, in performance of an exclusive contractual obligation, for the benefit of that taxable person, is in addition to contract manufacturing activities in the strict sense,provides a series of additional or additional services and thus contribute to the realization of sales concluded by the said taxable person from his seat outside the European Union, but which give rise to taxable supplies of goods which, according to VAT legislation, are located in the territory of said Member State?

AG Opinion

None

Decision

Article 44 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008, and Article 11 of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112,

must be interpreted as meaning that a taxable person receiving services, whose business is established outside the European Union, does not have a fixed establishment in the Member State in which the provider of the services concerned – which is legally independent from that recipient – is established, where that recipient does not have a suitable structure in terms of human and technical resources capable of constituting that fixed establishment, even where the taxable person providing the services provides to that taxable person receiving services, pursuant to an exclusive contractual undertaking, tolling services and a series of ancillary or additional services, contributing to the business of that taxable person receiving services in that Member State.

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