Key takeaways
On 13 June 2024, the European Court of Justice (“ECJ”) issued its ruling in case C-533/22 (Adient case) pertaining to whether an affiliated undertaking may be regarded as a fixed establishment of another foreign group company for VAT purposes.
Facts of the case
Adient group is a leading manufacturer on the worldwide automative market.
On 1 June 2016, Adient Germany concluded a contract with Adient Romania for the provision of intragroup services, including both services for the manufacturing of tolls and automotive products (the “Manufacturing Services”). The manufacturing services consisted, for Adient Romania, in transforming raw materials provided by Adient Germany for the manufacture of seat covers. The ancillary services carried out by Adient Romania consisted, inter alia, in taking delivery of, storing, inspecting and managing the raw materials and in storing the finished products. Adient Germany remained the legal owner of the raw materials, semi-finished products and finished products throughout the manufacturing process. Both Adient Germany and Adient Romanian are VAT registered in Romania. However, for the purposes of the receipt of the Manufacturing Services by Adient Germany from Adient Romania, Adient Germany used its German VAT number. As such, no VAT was charged in Romania, and instead the supplies were subject to the reverse charge procedure in Germany. Indeed, both parties to the intragroup agreement took the view that the supplies of services were made at the place where the recipient of those services was established i.e., Germany. Consequently, Adient Romania issued invoices excluding VAT, since, in its view, those supplies should be taxed in Germany by virtue of the business-to business VAT rules.
Nonetheless, the Romanian tax authorities took the position that Adient Romania should be regarded as a VAT fixed establishment of Adient Germany. Therefore, according to the Romanian tax authorities, Adient Romania was deemed rendering its services to a local Romanian branch of Adient Germany instead of Adient’s German head office. The services would then attract Romanian VAT instead of German VAT.
Outcome of the ECJ’s ruling
The ECJ ruled that Adient Romania is not to be regarded as a VAT fixed establishment of Adient Germany. The main key takeaways of the ECJ’s decision are as follows:
an independent group company does not constitute itself a fixed establishment of a different affiliated undertaking solely by reason of (i) the presence of a shareholding link between those two, or (ii) such same companies are bound as between themselves by a contract for the provision of intragroup services;
neither the fact a VAT taxable company has a local structure located in another member state i.e., Romania (other than the Member State of its business i.e., Germany) which intervenes in the supply of finished good resulting from the Manufacturing Services, nor the fact that the delivery of goods of those same finished goods mostly takes place outside the country of manufacturing i.e., outside Romania, are relevant to evidence the qualification of a fixed establishment of the company into the manufacturing country state i.e., Romania; and,
no fixed establishment exists in a Member State other than a company’s Member State of business, if there is a confusion between local human and technical resources used both to supply and to receive the said service, or, if these same human and technical resources solely perform preparatory or auxiliary activities.
The aforementioned decision seems to follow directly from the ECJ’s earlier rulings. Indeed, ECJ has just reaffirmed its position again (through the Adient case) under which a group company does not constitute a VAT fixed establishment of another foreign group company under certain circumstances.
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