Landmark CJEU ruling in VAT matters

The Court of Justice of the European Union (“CJEU”) ruled on 7 April 2022 in the long-awaited Berlin Chemie case (C-333/20) that a company which has its registered office in one Member State does not have a fixed establishment for VAT purposes in another Member State on the ground that that company owns a subsidiary in another Member State 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 its sales.

Berlin Chemie AG (“BC”) is a German company selling pharmaceutical products in Romania. BC receives marketing, regulatory, advertising and representation services from its wholly-owned Romanian subsidiary (“BCAM”). For these services, BCAM invoiced BC, applying the reverse charge mechanism pursuant to the general B2B place of supply rules. The Romanian VAT authorities were, however, of the view that BC has a fixed establishment in Romania by virtue of its own subsidiary, BCAM, and should hence have charged Romanian VAT on these invoices. 

According to the CJEU’s case law, the concept of a fixed establishment refers to (i) any establishment (ii) characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources (iii) to enable it to receive and use the services supplied to it for its own needs.

As to the second condition, the CJEU decides in the Berlin Chemie case that whereas it is not a requirement for a VAT taxpayer itself to own the human or technical resources in another Member State, it is, however, necessary for that VAT taxpayer to have the right to dispose of those human and technical resources in the same way as if they were its own, on the basis, for example, of employment and leasing contracts which make those resources available to the taxable person and cannot be terminated at short notice. The CJEU leaves it up to the national judge to determine whether the second condition is fulfilled in the present case. 

As to the third condition, the CJEU basically decides that this condition is not fulfilled as the human and technical resources of BCAM that are deemed to be made available to BC, thereby arguably triggering a fixed establishment of the latter company in Romania are the same human and technical resources through which BCAM supplies its services to BC. The same human and technical resources can, however, not be used both to supply and receive the same service which means that BC seems to use its own human and technical resources situated in Germany to sell its pharmaceutical products in Romania.

The Berlin Chemie judgment hence clarifies some questions that were outstanding after recent judgments of the CJEU, such as the Titanium case (C-931/19), which could be read as meaning that a fixed establishment needs to have its own personnel. 

Needless to say that following the Berlin Chemie judgment the position of the Belgian VAT authorities in many VAT audits and some Belgian courts seems highly questionable. On 18 March 2022, the Court of Appeal of Liège asked similar preliminary questions to the CJEU in a case where the Tribunal of First Instance of Liège had decided that the human and technical resources of a Belgian toll manufacturer which renders exclusive services to a Swiss group company would constitute a fixed establishment of the latter in Belgium. To be continued…