ECJ C-533/22 (Adient) – Judgment – No Fixed establishment solely on the basis that the two companies belong to the same group

On June 13, 2024, the Court of Justice of the European Union (CJEU) issued a decision in case C-533/22 (SC Adient Ltd & Co. KG). The ruling pertains to whether a controlled company or a group company should be regarded as a fixed establishment for VAT purposes. Here are the key points:

Group Affiliation Not Sufficient: The mere fact of belonging to the same group of companies or being linked through a contractual agreement is not sufficient to constitute a fixed establishment.
Supply of Goods Irrelevant: The subsequent supply of goods and related operations do not determine whether there is a fixed establishment receiving services.
Human and Technical Means: A fixed establishment does not exist where the human and technical resources used to render services are virtually the same as those for receiving the same services, or where these resources are merely involved in preparatory and auxiliary operations.

Context: Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Place of supply of services – Head office or fixed establishment – Establishment of a domestic group company as a fixed establishment of a foreign group company – Irrelevance of connections recognised under company law – Attribution of the establishment of the contract partner – Constitution of a fixed establishment by means of a contract for supply of services – Fixed establishment within the territory of a Member State as a substitute for a head office established within the territory of a different Member State)

Article in the EU VAT Directive

Article 44 in the EU VAT Directive 2006/112/EC.

Article 44 (Place of supply of services)
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.

Facts

Summary

Adient Group Overview:
- Headquartered in Europe, the Adient group is a global supplier to leading automotive manufacturers.
- They provide complete seating systems, modules, and components to original equipment manufacturers worldwide.
Contract with Adient România:
- On June 1, 2016, Adient Ltd & Co. KG (Germany) entered a contract with SC Adient Automotive România SRL (Adient România).
- The contract includes manufacturing and assembly of upholstery components, as well as ancillary and administrative services.
- Manufacturing services involve cutting and sewing raw materials for car seat covers.
Ownership and VAT Registration:
- Adient România incurs expenses for these activities, which are included in the manufacturing fee invoiced to Adient Ltd & Co. KG.
- Adient Ltd & Co. KG, a nonresident company based in Germany, was directly registered for VAT purposes in Romania.
- They use the Romanian VAT number for domestic and intra-Community purchases and supply products to customers.
VAT Assessment and Obligations:
- AJFP Argeș conducted a tax inspection related to VAT for the period from February 18, 2016, to July 31, 2018.
- Adient România recorded revenue from intra-Community services to Adient Ltd & Co. KG.
- AJFP Argeș concluded that Adient România must collect VAT for these services in Romania.
- Adient România contested the decision, but it was rejected by ANAF.

Detailed

The Adient group has its head office in Europe; the main company in that group is Adient Ltd & Co. KG Germany. The group is a global supplier to leading manufacturers in the automotive industry. It has a global network of manufacturing and assembly facilities which supply complete seating systems, modules and components to original equipment manufacturers.
On 1 June 2016, Adient Ltd & Co. KG entered into a contract with SC Adient Automotive România SRL (‘Adient România’) to provide a comprehensive service consisting of both the manufacture and assembly of upholstery components, as well as ancillary and administrative services. The manufacturing services consist of cutting and sewing raw materials to make car seat covers, while the ancillary services include storing raw materials and finished products, taking delivery of, inspecting and managing raw materials, and so on.
All expenses incurred by Adient România in order to ensure that those activities are carried out are included in the manufacturing fee invoiced to Adient Ltd & Co. KG. The latter purchases the raw material which it sends to Adient România (to the upholstery branches of Adient România in Pitești and Ploiești, known as TRIM) for treatment. Adient Ltd & Co. KG is the legal owner of the raw materials, semi-finished products and finished products throughout the treatment process.
In view of the transactions carried out in Romania, Adient Ltd & Co. KG, a nonresident person with its registered office in Germany, was directly registered for VAT purposes in Romania as of 16 March 2016 and was assigned a VAT number, which the company uses to carry out taxable transactions in Romanian territory.
Adient Ltd & Co. KG uses the VAT number assigned by the Romanian authorities both for domestic and intra-Community purchases and for supplies to its customers of the products manufactured by the TRIM branches of Adient România. For other services rendered by Adient România under the contract (manufacturing, assembly, storage and administrative services), it provided the VAT number assigned by the German authorities so as to be invoiced for the manufacturing services without VAT, since those services are considered taxable in the Member State in which the company is established.
Following a tax inspection carried out at Adient România, which concerned value added tax for the period from 18 February 2016 to 31 July 2018, AJFP Argeș found that that company had recorded and declared revenue from intraCommunity supplies of services to Adient Ltd & Co. KG Germany totalling 724 929 735 Romanian lei (RON). These consisted of manufacturing services for upholstery components; transactions for which the company being inspected considered the place of supply to be the place of establishment of the recipient of the services – namely Germany.
AJFP Argeș concluded that Adient România was required to collect VAT on supplies of services to Adient Ltd & Co. KG, since it considered the place of supply of those services to be in Romania, and so the reverse charge provisions did not apply. It also found that Adient Ltd & Co. KG had technical and human resources in Romania through the TRIM Pitești and TRIM Ploiești branches, with the result that it satisfied the conditions for a fixed establishment for VAT purposes in Romania. Consequently, the services in question are subject to VAT in Romania and Adient România is required by law to collect VAT.
On 29 March 2019, AJFP Argeș issued a decision by which it imposed additional payment obligations on Adient România totalling RON 139744797. Adient România contested the decision before the Agenția Națională de Administrare Fiscală (national tax administration agency; ‘ANAF’). The complaint was rejected as unfounded by decision of 30 January 2020. On 10 July 2020, in separate proceedings, Adient România challenged the decision disposing of the complaint and the decision imposing additional payment obligations before the Curtea de Apel Pitești (Court of Appeal, Pitești, Romania); the action was dismissed at first instance. The applicant lodged an appeal against that judgment, which is currently pending before the Înalta Curte de Casație și Justiție (High Court of Cassation and Justice, Romania).
The tax inspection team decided that the transactions in question – despite the formal application of the conditions laid down by the statutory provisions – had given rise to tax advantages by reducing the VAT liability in the period under review. This was contrary to the spirit of those statutory provisions and thus constituted an abuse. Likewise, they found that the VAT number issued by the German authorities had been improperly used.
In accordance with the applicable statutory provisions (Article 11(12) of Law No 227/2015 establishing the Tax Code), when an abuse exists, the transactions involved must be redefined so as to re-establish the situation that would have existed in the absence of the transactions that constituted an abuse. Therefore, following the tax inspection carried out at Adient România, AJFP Argeș found that Adient Ltd & Co. KG Germany, a contractual partner of the company being inspected and directly registered for VAT purposes in Romania, had sufficient technical and human resources to have fixed establishments in Romania, in accordance with the provisions of Article 266(2)(b) of Law No 227/2015
establishing the Tax Code.
By decision of 4 June 2020, Adient Ltd & Co. KG was automatically registered for tax purposes, through a fixed establishment located in Romania, at an address in the city of Pitești which was virtually identical to the address of the TRIM Pitești branch of Adient România. The applicant lodged a complaint against that decision with DGRFP Ploiești, which, by decision of 28 August 2020, rejected the complaint as unfounded.
The applicant submits that the defendants’ decisions are unlawful on account of the misinterpretation and misapplication of tax legislation and in view of the facts of the present case, arguing that the legal and case-law requirements for considering the provisions of Article 266(2) of [Law No 227/2015 establishing] the Tax Code applicable have not been met.
It relies on several judgments of the Court of Justice (Cases C-190/95, ARO Lease; C-260/95, DFDS; C-51/88, Hamann; C-73/06, Planzer Luxembourg; [and] C-547/18, Dong Yang Electronics) and states that, in relation to the arguments accepted by the Court, the tax authorities’ arguments that the classification of Adient România as a fixed establishment of Adient Ltd & Co. KG is acceptable are invalid, since Adient România was strictly limited to the role of manufacturer and thus had no decision-making powers.
The applicant submits that DGRFP Ploiești – AJFP Argeș was incorrect in stating that the duties and responsibilities of staff employed in Adient România’s quality department were not only confined to those derived from the quality control of the manufacturing process (inspecting the raw materials on delivery, work in progress and final products), but also entailed communication with customers/suppliers of Adient Ltd & Co. KG (Adient România receives, analyses, responds to, and takes corrective action concerning customer complaints, manages and compiles customer reports in the database, makes periodic visits to customers’ premises, participates in meetings at the product launch or product update stage, obtains data and information from suppliers, prepares monitoring plans for the products received, and so on). Adient România is not acting on behalf of Adient Ltd & Co. KG when it responds to complaints about quality; whether the response is sent to Adient Ltd & Co. KG or directly to the customer, Adient România has an obligation as the manufacturer, since it is directly involved in the manufacturing service performed.
The applicant claims that the additional VAT charged to Adient România was unlawful, since Adient Ltd & Co. KG does not satisfy the conditions for having a fixed establishment in Romania; nor does it have its own human and technical resources within Adient România.
The applicant further submits that, owing to the large volume of business and thanks to developments in information technology, raw materials and other materials received for treatment are recorded electronically directly in the accounting system of Adient Ltd & Co. KG; they are not entered in a physical ledger and sent to the German company for accounting purposes. Adient România uses the QAD logistics/management system not in order to ensure that Adient Ltd & Co. KG has the technical resources it needs in Romania, as ANAF incorrectly suggests, but because the two companies are affiliated and have the same accounting system, according to which the relevant assets belong to Adient Ltd & Co. KG but are physically located in Romania. Therefore, some individuals have access to the IT applications in order to perform those transactions, although not all employees have access to the electronic systems. Access is granted according to the specific duties of each individual, as assigned to them by their line manager and by the manager/director of the Adient România facility.
Adient România does not produce in its own name any documentation concerning the treated products belonging to Adient Ltd & Co. KG; any certification in relation to those goods is recorded directly in the accounting system of Adient Ltd & Co. KG. Whether the goods received for manufacturing are recorded in paper or electronic format – which is the manufacturer’s responsibility – the tax inspection team unfairly bases its line of argument on the form rather than the substance of the transaction.
As far as human resources are concerned, these do not belong to Adient Ltd & Co. KG in Romania; numerous explanations to that effect were submitted to the tax authorities, which failed to take them into consideration. Employees have a contractual relationship with Adient România; the terms of their employment and their pay are negotiated with that company. Adient România decides on the duration of employment contracts and the number of employees required, and it is for Adient România to terminate such contracts.
The applicant submits that another argument put forward by the tax authorities to demonstrate that it has human resources in Romania is that employees in Adient România’s logistics department are involved in the actual supply of the goods and supplies are recorded directly in the accounting system of Adient Ltd & Co. KG. They also place shipping orders when the carrier is Adient Ltd & Co. KG.
The applicant maintains that, in reality, it supplies the finished products. Placing the shipping order is merely an administrative task which involves sending the information to the carrier, since, for objective reasons, the manufacturer needs to prepare the goods for loading and, naturally, must work with the carrier to ensure that they are delivered on time.
In addition, the activities of the Romanian TRIM units are predominantly aimed at ensuring compliance with the manufacturing agreement, while the other activities are of an administrative nature (conveying information regarding matters previously agreed between Adient Ltd & Co. KG and its suppliers/customers). Adient România’s employees have no decision-making powers regarding the actual sale/purchase of the goods by Adient Ltd & Co. KG. Moreover, they are not involved in the supply of finished products and are not entitled to make decisions about the quantities, prices or parties involved.
As for the technical resources, the applicant claims that it does not have access to Adient România’s technical resources. Specifically, Adient Ltd & Co. KG does not choose which equipment should be used for the manufacturing activity; nor does it decide on the timing of equipment maintenance, replacement or modernisation. In short, it has no decision-making powers regarding the technical resources available at the Adient România site.
DGRFP Ploiesti, represented by AJFP Argeș, lodged a defence, requesting that the action be dismissed as unfounded for the various reasons set out below.
From the documents analysed by the tax inspection authorities during the partial tax inspection carried out at Adient România, it was found that Adient Ltd & Co. KG Germany has the necessary human and technical resources to carry out regular taxable transactions in Romania.
With regard to human resources, employees in Adient România’s logistics department communicate with the customers/suppliers of Adient Ltd & Co. KG and receive orders placed by customers of Adient Ltd & Co. KG Germany. The production planning department automatically calculates the raw material and material requirements on the system. Meanwhile, staff in Adient România’s logistics department are involved in the actual supply of the goods, and supplies are recorded directly in the accounting system of Adient Ltd & Co. KG. Likewise, the same staff place shipping orders when the carrier is Adient Ltd & Co. KG.
The duties and responsibilities of employees in Adient România’s quality department are not only confined to those derived from the quality control of the manufacturing process (they examine the raw materials received from suppliers, perform random checks along the production line and inspect the finished products – namely seat covers). In the course of performing those duties and responsibilities and carrying out their activities, they communicate with customers and suppliers, representing Adient Ltd & Co. KG vis-à-vis third parties. They are also involved in organising and compiling an annual inventory of assets belonging to Adient Ltd & Co. KG, assigning a monetary value to the latter, and in audits requested by customers of Adient Ltd & Co. KG.
DGRFP Ploiești – AJFP Argeș further argues that, although the applicant claims that in order for a fixed establishment to exist, its human resources must be able to take management decisions or provide a framework within which agreements may be drawn up for and on behalf of Adient Ltd & Co. KG, the routine administrative decisions, the presence of authorised personnel who take such decisions locally in Romania (for coordination or verification purposes, for example) and the logistics necessary to achieve that objective are also relevant from the point of view of whether or not the conditions laid down by law regarding the existence of a fixed establishment in Romania are satisfied.
As a result, Romanian nationals – employees in Adient România’s logistics and quality departments, those involved in the annual inventory of assets belonging to Adient Ltd & Co. KG, [those involved] in audits, those who have access to the computer system belonging to Adient Ltd & Co. KG, [and] the directors of the two TRIM branches – are in fact permanent human resources of Adient Ltd & Co. KG Germany in Romania.
As for the technical resources, these consist of technical means (such as computers and scanners) belonging to Adient România, areas for the storage of goods belonging to Adient Ltd & Co. KG, and warehouse equipment and machinery.
Therefore, DGRFP Ploiești – AJFP Argeș considers that the activity carried out in Romania by Adient Ltd & Co. KG is characterised by a sufficient degree of permanence, since the transactions in question were carried out regularly and on a continual basis throughout the period under review, using the human and technical resources described above, which enabled it to receive supplies of services and use them for its business.
DGRFP Ploiești – AJFP Argeș considers the judgments of the Court of Justice in Cases C-168/84, Berkholz, C-190/95, ARO Lease, C-605/12, Welmory, and C-73/06, Planzer Luxembourg to be relevant in that regard. In Berkholz, the Court of Justice considers that a fixed establishment entails the permanent presence of both the human and technical resources necessary for the provision of services. In ARO Lease, the Court of Justice held that when a leasing company does not possess in a Member State either its own staff or a structure which has a sufficient degree of permanence to provide a framework within which agreements may be drawn up or management decisions taken and thus to enable the services in question to be supplied on an independent basis, it cannot be regarded as having a fixed establishment in that State. DGRFP Ploiești – AJFP Argeș considers, however, that that interpretation cannot be automatically extended to the present case, given that leasing services are different in nature. In Welmory, the Court of Justice determined that, in order to constitute a ‘fixed establishment’ within the meaning of Article 44 of Directive 2006/112, the establishment must be characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive the services supplied to it and use them for its business. In Planzer Luxembourg, the Court of Justice held that the place of a company’s business is the place where the essential decisions concerning its general management are taken and where the functions of its central administration are exercised and that a fixed installation used by the undertaking only for preparatory or auxiliary activities, such as recruitment of staff or purchase of the technical means needed for carrying out the undertaking’s tasks, does not constitute a fixed establishment.
With regard to the Opinion of Advocate General Kokott in Case C-547/18, Dong Yang Electronics, relied on by the applicant in the application, DGRFP Ploiești –AJFP Argeș remarks that there are differences between the present case and Case C-547/18, since Adient România was not asked to do the impossible – that is, to undertake complex and far-reaching checks or to verify contractual relationships which are inaccessible to it, which would go beyond the level of diligence that can reasonably be required of it to determine the place of supply of the services.
DGRFP Ploiești – AJFP Argeș considers that the conditions laid down in Article 44 of Directive 2006/112, read in conjunction with the provisions of Implementing Regulation No 282/2011, concerning the concept of a fixed establishment of a taxable person, are satisfied and that Adient Ltd & Co. KG has sufficient technical and human resources to have a fixed establishment in Romania (the TRIM Pitești and TRIM Ploiești branches). Therefore, the conditions imposed by Article 266(2)(b) of Law No 227/2015 establishing the Tax Code are satisfied. Thus, as regards the place of supply of the services provided by the company being inspected to its partner Adient Ltd & Co. KG, this is not considered to be located at the place of business in Germany, but in the State inwhich the fixed establishment is located, namely Romania.

Questions

1. Are the provisions of Article 44 of Directive 2006/112/EC on the common system of value added tax and of Articles 10 and 11 of Council Implementing Regulation No 282/2011 laying down implementing measures for [that directive] to be interpreted as precluding the practice of a national tax authority whereby an independent resident legal person is classified as the fixed establishment of a nonresident entity solely on the basis that the two companies belong to the same group?
2. Are the provisions of Article 44 of Directive 2006/112/EC on the common system of value added tax and of Articles 10 and 11 of Council Implementing Regulation No 282/2011 implementing [that directive] to be interpreted as precluding the practice of a national tax authority whereby it is considered, by reference only to the services supplied to a non-resident entity by a resident legal person, that a fixed establishment of a non-resident entity exists within the territory of a Member State?
3. Are the provisions of Article 44 of Directive 2006/112/EC on the common system of value added tax and of Articles 10 and 11 of Council Implementing Regulation No 282/2011 laying down implementing measures for [that directive] to be interpreted as precluding tax legislation and the practice of a national tax authority whereby it is considered that a fixed establishment of a non-resident entity exists within the territory of a Member State, given that that fixed establishment supplies only goods and not services?
4. Where a non-resident person has, within the territory of a Member State, human and technical resources within a resident legal person which are used to ensure the supply of services whereby goods are manufactured – goods which are to be supplied by the non-resident entity – are the provisions of Article 192a(b) of Directive 2006/112/EC on the common system of value added tax and of Article 11 and Article 53(2) of Council Implementing Regulation No 282/2011 laying down implementing measures for [that directive] to be interpreted as meaning that those manufacturing services supplied by means of the technical and human resources of the non-resident legal person are: (i) services received by the non-resident legal person from the resident person by means of those human and technical resources, or, as the case may be, (ii) services provided by the nonresident legal person itself by means of those human and technical resources?
5. Depending on the answer to Question 4, how is the place of supply of services to be determined with reference to the provisions of Article 44 of Directive 2006/112/EC on the common system of value added tax and of Articles 10 and 11 of Council Implementing Regulation No 282/2011 laying down implementing measures for [that directive]?
6. In the light of Article 53(2) of Council Implementing Regulation No 282/2011 laying down implementing measures for [Directive 2006/112/EC on the common system of value added tax], should activities linked to the treatment of goods, such as taking delivery, recording inventory, placing orders with suppliers, providing storage areas, managing inventory in the IT system, processing customer orders, indicating the address on transport documents and invoices, providing quality control support, and so on, be disregarded when determining the existence of a fixed establishment, given that they are ancillary administrative activities which are strictly necessary for the manufacture of the goods?
7. In view of the principles relating to the place of taxation as the place where final consumption takes place, is it relevant for determining the place of supply of the manufacturing services that the goods resulting from those services are mostly (intended to be) sold outside Romania, while those sold in Romania are subject to VAT, and therefore the result of the services is not ‘consumed’ in Romania or, if it is ‘consumed’ in Romania, it is subject to VAT?
8. Where the technical and human resources of the fixed establishment receiving the services are virtually the same as those of the provider through whom the services are actually performed, is there still a supply of services for the purposes of Article 2(1)(c) of [Directive 2006/112/EC on the common system of value added tax]?

AG Opinion

(1) In view of the fact that the same means cannot be used at the same both to provide and receive the same services, there could not be a taxable transaction under Article 2(1)(c) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax in the present case, even if it were to be found that a fixed establishment existed.

(2) For the purposes of the second sentence of Article 44 of Directive 2006/112, an independent group company (in another Member State) is not to be regarded as a fixed establishment of a different group company on the sole basis of a link recognised under company law. Even a complex contract for the supply of services does not mean, in principle, that the supplier is effecting a taxable transaction in favour of a fixed establishment of the service recipient formed on the basis of that contract. In that regard, the place of supply of those services depends neither on the nature of the output transactions (supply of goods or services) of the service recipient, nor on the place of ‘consumption’ of the specific manufacturing services.

(3) For the purposes of the second sentence of Article 44 of Directive 2006/112, a fixed establishment exists only if it substitutes for a head office located within the territory of another Member State. Consequently, a contract entered into with a supplier of services can be capable of constituting a fixed establishment only if that contract does not relate solely to the provision of services to goods belonging to the recipient of the services. Instead, it must be aimed at provision of the human and/or technical resources that are necessary to ensure that the recipient can supply goods or services on site (that is, at the place of the fixed establishment) that are similar to those provided at a head office.

Decision

1. 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 (EU) 2018/1695 of 6 November 2018, and Article 11(1) of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax

must be interpreted as meaning that a company subject to value added tax having its business in one Member State, which receives services provided by a company established in another Member State, cannot be regarded as having a fixed establishment in that other Member State, for the purposes of determining the place of supply of those services, solely because the two companies belong to the same group or those companies are bound as between themselves by a contract for the provision of services.

2. Article 44 of Directive 2006/112, as amended by Directive 2018/1695, and Article 11 of Implementing Regulation No 282/2011

must be interpreted as meaning that neither the fact that a company subject to value added tax (VAT) having its business in one Member State, which receives manufacturing services provided by a company established in another Member State, has in that other Member State a structure which intervenes in the supply of the finished products arising from those manufacturing services, nor the fact that those supply transactions are carried out mostly outside that Member State and that those that are carried out there are subject to VAT are relevant to establishing, for the purposes of determining the place of supply of services, that that company has a fixed establishment in that other Member State.

3. Articles 44 and 192a of Directive 2006/112, as amended by Directive 2018/1695, and Articles 11 and 53 of Implementing Regulation No 282/2011

must be interpreted as meaning that a company subject to value added tax having its business in one Member State, which receives services provided by a company established in another Member State, does not have a fixed establishment in that other Member State if its technical and human resources in that Member State 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.

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