EU definition of Fixed Establishment Clarified
Adient Germany and Adient Romania, both part of the Adient group, collaborated on manufacturing upholstery components. Adient Romania provided manufacturing and ancillary services under a contract with Adient Germany, which remained the owner of all materials and products. The Romanian VAT authorities argued that Adient Germany had a fixed establishment in Romania and required Adient Romania to collect VAT.
The question as to whether Adient Germany had a fixed establishment in Romania was referred to the CJEU. The Court held that a company receiving services from a sister company in another Member State does not have a fixed establishment there simply because it belongs to the same group and entered into a contract with that company. Additionally, the Court held that having a structure involved in supplying finished products or conducting most transactions outside its Member State of establishment was not determinative in deciding that the company had a fixed establishment there. The company must have technical and human resources at its own disposal in the Member State in question, distinct from those required to provide the services it receives, and which are not just for preparatory or auxiliary activities.
Key takeaway
In that case, the CJEU provides interesting clarifications regarding what constitutes a Fixed Establishment. The position seems to be slightly departing from previous cases that had a less restrictive scope. The definition of Fixed Establishment remains nonetheless subject to domestic interpretation and taxpayers should make sure that they carefully analyse their position as this is an area of frequent enquiry and challenge.
