Subsidiary’s resources are not VAT fixed establishment of the parent company – so the services supplied by the Romanian subsidiary to the parent company are not taxed in Romania.

Berlin Chemie, C-333/20, judgment, 7.04.2022

Last week we wrote about a new ECJ judgment on FE on the horizon. Finally it has been just released.

A German company operates in the pharmaceutical industry. It sells its pharmaceutical products (owned by it) in Romania to Romanian customers.

The German company has an agreement to store its goods in a warehouse in Romania (the storage service is provided by a Romanian unrelated company).

The German company also has a subsidiary in Romania. This subsidiary provides marketing and advertising services to the German company. These services consist of advertising the German company’s goods and resolving legal issues related to drug promotion in Romania.

The charge to the German company by the Romanian company is on a cost-plus basis, and the service fees are offset under a group financial system.

The Court ruled that in such a situation the German company does not have VAT fixed establishment in Romania and the Romanian subsidiary’s service is not subject to VAT in Romania.

The Court reasoned in particular that:

• In order for a company to be deemed to have VAT fixed establishment in another country, it is necessary that it has human and technical resources which it can dispose of as its own – including under service contracts (the disposal of staff under employment contracts is not necessary);
• The national court must therefore assess whether the German company has a VAT fixed establishment in Romania – that is, in particular, whether the German company, by means of a contract concluded with the Romanian company, has such control over those resources that it disposes of them as its own;
• However, it is also necessary to examine whether the fixed establishment is of such nature that it is able to receive and use the services provided to it;
• In this regard, the relevant facts to be taken under consideration are that the Romanian company’s employees’ role was to inform the clients about the goods sold by the German company, take orders, pass on the invoices from the German company to the clients. They did not directly participate in sales and did not incur obligations to third parties on behalf of the German company.
• The subsidiary’s ability to make decisions is not a relevant factor.
• In this case, moreover, the Romanian company’s resources, which are potentially to form a VAT fixed establishment, are used at the same time to provide services. However, the same resources cannot be used to provide and receive a service at the same time.
• Under those circumstances, the German company does not have the human and technical resources in Romania to receive services and use them for its activity of selling and supplying pharmaceutical products.