The Court of Justice of the EU (CJEU) has recently provided clarification on the concept of a fixed establishment (FE) for VAT purposes in a significant decision. In the case of Cabot Plastics Belgium SA (C-232/22), the CJEU ruled that a toll manufacturer in Belgium, operating under an exclusive contract, did not constitute an FE for its affiliated Swiss principal.
This ruling builds upon a previous decision by the CJEU, which addressed the question of whether a legally independent entity can be considered an FE of another company. The CJEU had previously stated that an entity can be considered an FE if it has the ability to dispose of the resources of the former entity as if they were its own.
In the Cabot Plastics case, the CJEU followed this precedent and determined that toll manufacturing, as well as ancillary logistical and sales support services, do not create an FE for the receiving company, even if they are provided exclusively. The case involved Cabot Switzerland GmbH, a Swiss company, and its legally independent Belgian entity, Cabot Plastics, which provided toll manufacturing services and additional services under an exclusive agreement.
The Belgian tax authority had initially concluded that Cabot Switzerland had an FE in Belgium for VAT purposes. However, the CJEU disagreed with this assessment. In its decision, the CJEU referred to its previous ruling in the Welmory case (C-605/12) and emphasized that for a company to be considered as having an FE in another country, it must have a sufficiently permanent and suitable structure in that country to receive and use the services in question for its business.
Furthermore, the CJEU clarified that the existence of an exclusive contract does not automatically create an FE. This ruling highlights the importance of a physical presence and a permanent establishment in a country for VAT purposes, rather than solely relying on contractual arrangements.
This decision by the CJEU has significant implications for companies engaged in toll manufacturing and other similar arrangements. It provides clarity on the requirements for establishing an FE and emphasizes the need for a physical presence and a permanent structure in a country to be considered as having an FE for VAT purposes.
The CJEU’s ruling in the Cabot Plastics case is part of a broader body of case law that aims to define and interpret the concept of an FE for VAT purposes. The CJEU has been actively involved in shaping the EU’s VAT system and ensuring its uniform application across member states.
As businesses operate in an increasingly globalized and interconnected world, the determination of an FE has become a crucial aspect of VAT compliance. Understanding the criteria and requirements for establishing an FE is essential for businesses to accurately assess their VAT obligations and avoid potential disputes with tax authorities.
In conclusion, the CJEU’s decision in the Cabot Plastics case provides important guidance on the concept of an FE for VAT purposes. It clarifies that toll manufacturing and ancillary services, even if provided exclusively, do not create an FE for the receiving company. The ruling emphasizes the need for a physical presence and a permanent structure in a country to be considered as having an FE. This decision has significant implications for businesses engaged in similar arrangements and highlights the importance of understanding the criteria for establishing an FE for VAT compliance.
