ECJ: Local branch of Romanian company as fixed establishment of German group company?
The European Court of Justice must decide whether a German resident company (limited partnership) has a fixed establishment for VAT purposes in Romania under a service contract with a Romanian group company. Also, the question of the place of performance is the subject of the judicial review. The Romanian tax authorities believe that the place of supply is in Romania. In her Opinion the Advocate General expressed doubts as to the assumption of a Romanian fixed establishment of the German company.
The claimant in the main proceedings in Romania is Adient Ltd & Co. KG (‘Adient DE’) with its residence in Germany. It belongs to the Adient group, a global supplier to 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.
In June 2016, Adient DE concluded a contract with SC Adient Automotive România SRL (‘Adient RO’) – another company within the Adient group – to provide a comprehensive service consisting of both the manufacture and assembly of upholstery components, as well as ancillary and administrative services. In that respect, Adient RO has two establishments in Pitești and Ploiești (Romania), in which the relevant goods are manufactured for Adient DE.
Adient RO, as the service provider, considered that the place of supply of its services was in Germany at the place of the recipient of those services (Adient DE). Hence, it did not calculate and deduct any Romanian VAT. In contrast, the Romanian tax authorities concluded that Adient RO was required to collect VAT on its services supplied to Adient DE, since it considered the place of supply of those services to be in Romania. It also held that Adient DE had technical and human resources in Romania through the branches of Adient RO in Pitești and Ploiești, with the result that it satisfied the conditions for a fixed establishment for VAT purposes in Romania. In the following, the Regional Court referred the case to the ECJ for a preliminary ruling.
Opinion of Advocate General (AG) Juliane Kokott
The AG suggests the Court decide that a fixed establishment would exist if it substitutes for a head office located within the territory of another Member State. Consequently, a service contract with a supplier of services can only be capable of constituting a fixed establishment if that contract does not relate solely to the provision of services to goods belonging to the recipient of the services. In that respect, a fixed establishment must – according to the settled case-law of the Court – be characterized 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.
In the case of the main proceedings, the service contract relates – in so far as can be determined – to multiple services to be performed by Adient RO, in its own name and at its own risk, to products of Adient DE, that Adient DE subsequently uses to effect its own transactions. Adient DE and Adient RO thus act independently in their own respective areas, without the head office of Adient DE being substituted as a result of those contractual provisions (Opinion, paragraphs 30 – 37 with more details).
Further questions referred to the ECJ which were also addressed by the AG:
By its first, second, third and seventh questions, the referring court is essentially asking how a fixed establishment that is to be regarded as the recipient of a service is to be defined within a group, such that the place of supply of services is determined by reference to the location of the fixed establishment and not by reference to the location of the head office (Opinion, paragraphs 38 - 48).
By its fourth, fifth and sixth questions, the referring court is raising a question concerning the application of Article 192a(b) of the VAT Directive, in order to establish whether Adient DE is to be regarded as a resident person or a non-resident person in Romania. That presupposes that Adient DE has a fixed establishment in Romania, which is, if necessary, to be determined in isolation from the group structure (Opinion, paragraphs 60 – 71).
Note: In his comments, the Advocate General refers, among others, to the ECJ judgment of 7 April 2022 in the case C-333/20 Berlin Chemie A. Menarini SRL (see our blog post of 23 May 2022).