Analysis of the legal issues and main considerations in the context of Case C-232/22 (Cabot Plastics) concerning the fixed establishment under VAT law.
This document provides a detailed overview of the key points, crucial criteria and the ruling of the Court of Justice of the European Union (CJEU) in Case C-232/22, as well as the contextual background and relevant definitions.
1. Background and key question:
At the heart of the legal discussion in Case C-232/22 revolves around the interpretation of the concept of ‘fixed establishment’ in the context of Article 44 of the VAT Directive (Directive 2006/112/EC) and Article 11 of Implementing Regulation (EU) No 282/2011. The specific question is whether a taxable person established outside the European Union (in this case, Switzerland) (Cabot Switzerland) can be considered to have a fixed establishment in a Member State (Belgium) where a legally independent service provider (Cabot Plastics Belgium) is established. That question is particularly relevant because of an exclusive service contract between the two parties and the fact that the service provider also provides additional services which contribute to the economic activities of the recipient in that Member State.
The central legal discussion focuses on the question whether the human and technical resources of the service provider can be attributed to the recipient of the service as its own resources for the establishment of a fixed establishment in these circumstances. As the frequently asked questions put it: ‘The focus is on whether the human and technical resources of the service provider can be attributed to the recipient of the service in these circumstances as its own resources for the establishment of a fixed establishment’ (VAT fixed establishment Case C-232/22, Question 1).
2. Crucial Criteria for the Existence of a “Permanent Establishment”:
According to Article 11(1) of Implementing Regulation No 282/2011, a ‘permanent establishment’ is characterised by two essential elements:
- A sufficient degree of durability: This implies a certain permanence of the establishment.
- An appropriate structure in terms of human and technical resources: The entity must have the necessary resources.
In addition, that structure must ‘enable the establishment to receive the services supplied to it and to use them for its own needs’. (VAT fixed establishment Case C-232/22, Question 2; CURIA – Documents, paragraph 4). The CJEU emphasises that the assessment of the existence of a fixed establishment must be carried out from the perspective of the recipient of the services (CURIA – Documents, paragraph 32).
3. Primary Place of Provision of Services and the Role of the Permanent Establishment:
The VAT Directive applies as a general rule that the place of supply of services to a taxable person is the place where he has established his business. This is based on the principle of an ‘objective, simple and practical criterion providing a high degree of legal certainty’. (VAT Fixed Establishment Case C-232/22, Question 3; CURIA – Documents, paragraph 29).
The connection with any permanent establishment is an exception to this main rule. The place of a fixed establishment becomes relevant “if the services are supplied to a fixed establishment of the taxable person which is located in a place other than where he has carried on his business.” In that case, the place of the fixed establishment is considered to be the place of supply of services (VAT Fixed Establishment Case C-232/22, Question 4; CURIA – Documents, paragraph 3).
4. Legal Independence and Disposal of Resources:
The legal independence of the service provider does not in itself preclude the recipient from having a fixed establishment at the supplier’s location (VAT Fixed Establishment Case C-232/22, Question 5; CURIA – Documents, paragraph 36). However, crucially, the recipient of the service ‘must have the right to dispose of these resources as if they were his own’ (VAT Fixed Establishment Case C-232/22, Question 6; CURIA – Documents, paragraph 35). The mere fact that the resources of the independent service provider are for the benefit of the recipient of the service is insufficient (VAT Fixed Establishment Case C-232/22, Question 5). Economic and commercial reality is leading, and legal status is not the only determining factor (VAT Fixed Establishment Case C-232/22, Question 5; CURIA – Documents, paragraph 36).
The CJEU stresses that although ownership of the resources is not required, the recipient of the service must have “immediate and permanent access to those resources as if they were his own” (CURIA – Documents, paragraph 38).
5. Exclusive Service Agreement and Allocation of Resources:
An exclusive service contract does not in itself automatically lead to the conclusion that the resources of the service provider must be regarded as the recipient’s own resources (VAT Fixed Establishment Case C-232/22, Question 7; CURIA – Documents, paragraph 39). The service provider remains responsible for its own resources and bears the risk of its services. The contractual or factual situation must be such that the recipient of the services has at his disposal the resources ‘as if they were his own resources, and can direct and use them for his own business purposes’ (VAT fixed establishment Case C-232/22, Question 7; CURIA – Documents, paragraph 37).
6. Role of Additional Services:
The additional services provided by the service provider (Cabot Plastics Belgium) to the recipient of the service (Cabot Switzerland) (such as storage, quality control, logistical assistance) are in principle separate transactions from the principal supply (tolling) (VAT Fixed Establishment Case C-232/22, Question 8; CURIA – Documents, paragraph 40). In order to assess whether the recipient of the service has a fixed establishment for the purchase of the principal service, it is relevant where the recipient of the service has the means to receive this principal service and to use it for its own needs. The place where the recipient of the services uses the funds for the purposes of its own economic activities (such as the sale of the goods produced) is not necessarily the same place where it receives the toll services and uses them for the production (VAT Fixed Establishment Case C-232/22, Question 8; CURIA – Documents, paragraph 43). The CJEU explicitly states that “the fact that the service provider also provides the recipient of those services with the abovementioned ancillary services, thereby facilitating the activities of that recipient, such as the sale of the goods resulting from the processing under contract, has no bearing on whether that recipient has a fixed establishment” (CURIA – Documents, paragraph 43).
7. Judgment of the Court of Justice (Case C-232/22):
The CJEU ruled that Article 44 of the VAT Directive and Article 11 of Implementing Regulation No 282/2011 must be interpreted as meaning that a taxable person established outside the EU does not have a fixed establishment in the Member State where the supplier of services (which is legally independent) is established, ‘where that recipient does not have a sufficient structure in terms of human and technical resources that can constitute that fixed establishment, even where the taxable person providing the services pursuant to an exclusive contractual obligation to that taxable person receiving the services carries out toll processing and provides a series of ancillary or ancillary services which contribute to the activities of that taxable person receiving the services in that Member State.’ (CURIA – Documents, paragraph 46 and operative part).
The Court points out that, in Belgium, the recipient of the service (Cabot Switzerland) did not have an appropriate structure in terms of its own human and technical resources to receive and use the tolling services for its own needs, despite the exclusive agreement with Cabot Plastics Belgium and the additional services provided by Cabot Plastics Belgium. The resources remained under the control and responsibility of the service provider.
8. Key Ideas and Facts:
- The primary rule for the place of supply of services is the place where the customer has established his business. The permanent establishment is an exception to this.
- The existence of a permanent establishment requires a sufficient degree of permanence and an appropriate structure of own (or equivalent) human and technical resources.
- The recipient of the service must be able to receive the services provided and use them for his own needs at the place of the alleged fixed establishment.
- Legal independence of the service provider does not necessarily preclude a fixed establishment of the recipient of services, but the recipient must have the actual disposal of the resources as if they were his own resources.
- An exclusive service contract does not automatically mean that the resources of the service provider can be attributed to the recipient of the service as own resources.
- Additional services provided by the service provider are, in principle, separate transactions and do not directly determine the location where the principal service is received and used within the meaning of Article 44 of the VAT Directive.
- The fact that the economic activities of the supplier and the recipient of the services form an economic whole is not decisive for the existence of a fixed establishment.
9. Implications:
The judgment in Case C-232/22 clarifies the strict criteria for the acceptance of a permanent establishment in situations where a foreign entity relies solely on the resources of a legally independent service provider in a Member State. The focus is strongly on the actual disposal and control of the service recipient over the human and technical resources. This judgment emphasises that an exclusive service contract is not in itself sufficient to consider the resources of the service provider as those of the recipient of services for the establishment of a fixed establishment for VAT purposes. This has important implications for multinational companies that structure their activities through intra-group service agreements.
See also
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
