A subsidiary providing marketing and representation services to the do dominant company, which may have impact on the sale of the dominant company, may not be regarded on this ground as the fixed establishment of the dominant company for the purposes of receiving of those services – follows from the CJEU ruling from 7th April 2020 in the case C-333/20 (Berlin Chemie A. Menarini SRL).
The correct taxation of the services rendered by the subsidiary from one Member State to the dominant company in another Member State is since years subject of further judgements of the Court of Justice of the EU (further: CJEU) and the national administrative courts. A central question addresses the issue, whether the services rendered by the subsidiary may be considered as sufficient for establishment of a fixed establishment (further: FE) of the dominant company in the Member State, in which the subsidiary provides those services, for the purposes of receiving of those services.
If the FE is considered as not established, then the services rendered by the subsidiary are taxable in the country of the acquiring company according to the reverse charge principle, and the subsidiary issues invoices without the VAT amount on them. On the other hand, if the FE is considered as established, then the subsidiary shall be regarded as rendering its services to the FE of the dominant company located in the Member State, in which the subsidiary performs those services, those services shall be treated as taxable in this state and the subsidiary is obliged to issue invoices with the VAT.
Berlin Chemie AG is a German company, which supplies wholesale distributors among others in Romania with pharmaceutical products. Berlin Chemie AG and its Romanian subsidiary entered into a contract, under which the Romanian subsidiary undertook to provide marketing, regulatory, advertising and representation services to Berlin Chemie AG. As part of the provided services, the Romanian company participated in the sale activities of the Berlin Chemie AG by taking orders for pharmaceutical products from the wholesale distributors in Romania and forwarding them to the German company as well as by dealing with and forwarding of the invoices to the clients.
Both parties assumed, that the German company has no FE in Romania and treated the services are taxable in Germany according to the reverse charge principle.
In the tax audit, the Romanian tax authority assessed that the services rendered by the Romanian company where supplied to the FE of the German company in Romania. According to the tax authorities, the technical and personal resources of the Romanian company constituted a FE of Berlin Chemie AG in Romania, from which it could have carried out regular supplies of taxable goods and services.
Accordingly, the tax authority issued a tax assessment requiring the Romanian company to pay VAT on the services in question.
The case was brought before CJEU, which dismissed the argumentation of the tax authority. CJEU, in reference to the ruling from 16th October 2014 in case C-605/12 (Welmory), pointed that is it important to distinguish the services supplied by the Romanian company to the German company from the goods which the German company sells and supplies in Romania. These are different tax events, which are subject do different schemes of VAT.
CJEU stressed, that the resources of the Romanian company cannot be treated as used both to provide and receive the same services. The marketing, regulatory, advertising and representation services provided by the Romanian company are received by the resources of the German company located in Germany, from which the German company concludes and performs the contracts of sale with distributors in Romania.
CJEU concluded, that the company which has its registered office in one Member State does not have a FE in another Member State on the ground that the company owns a subsidiary there that makes available to it human and technical resources under contracts by means of which that subsidiary provides, exclusively to it, marketing, regulatory, advertising and representation services that are capable of having a direct influence on the volume of is sales.
According to the predominant case-law in Poland, provision of the services by the Polish subsidiary to the foreign dominant company does not constitute the FE of the buying company in Poland, provided that the resources of the Polish contractor are not put at the disposal of the foreign company as they were its own (e.g. judgement of the Regional Administrative Court (further: WSA) in Gliwice from 28th July 2020, case file I SA/Gl 141/20).
However, the above principle does not apply, if the Polish contractor is actively involved in the sale performed by the foreign company. The case-law of Polish administrative courts developed a view over the last years, according to which a long-term cooperation with the Polish contractor, involving supporting of the sale of the foreign taxpayer by the Polish contractor, constitutes a Polish FE of the foreign taxpayer on the territory of Poland. In the context of the discussed issue, the judgement of the Supreme Administrative Court (NSA) from 22nd July 2020, case file I FSK 1777/17, deserves special attention. In this judgement, the court has held, that the Maltese company, performing distribution of the medicinal products on the territory of Poland, will have a FE in Poland with regard to the acquisition of the promotional, marketing, logistic, advisory and accounting services from Polish entities. According to the court, since all the processes, which are crucial for the sale of the goods, are performed by the Polish contractors, the entity of those processes creates a FE of the foreign taxpayer in Poland.
Noteworthy is also the judgement of the WSA in Gliwice from 25th November 2020, case file I SA/Gl 138/20, in which the WSA accessed the toll-manufacturing services. In the facts of the case the German entity was outsourcing to the Polish contractor the production of certain types of furniture, whereas some of the final products were transported to the warehouse in Poland and sold through the Polish company. The WSA concluded, that in this situation the Polish company enables the Germany entity performance of economic activities in the form of trade and distribution of the furniture and therefore constitutes the FE of the foreign entity in Poland.
The discussed court verdicts show, that according to the current Polish case law, the services supporting the sale performed by the Polish contractors generate a Polish FE of the foreign entity. Furthermore, also services, that generally do not constitute a FE in Poland (like e.g. toll-manufacturing), may result in creation of FE, if the performing entity is also involved in the sale of the final goods.
The discussed ruling of CJEU contradicts this interpretation. In the facts being the subject of the CJEU ruling, the Romanian company was actively involved in the sale of the pharmaceutical products performed by the German dominant company to the Romanian wholesale distributors: it was carrying out advertising activities on the territory of Romania, it was taking orders from the wholesale distributors in Romania and forwarding them to the German company as well as was forwarding the invoices to the clients. CJEU clearly stated, that those activities do not generate a FE of the German company in Romania. CJEU stressed, that the German company concluded and performed the contracts of sale with distributors in Romania not from its Romanian FE, but from its resources situated in Germany. The fact, that the Romanian subsidiary was involved in the sale process by provision of the marketing and customer support services, does not constitute a FE of the German company in Romania.
The Polish case-law, regarding the involvement of the Polish subcontractors in the sale activities of the foreign companies as constituting the FE of the foreign company, should no longer be pursued in the light of the discussed CJEU ruling.
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