The Court of Justice of the European Union (CJEU) ruled in Case C-232/22 Cabot Switzerland that the recipient of services supplied from a Member State other than the place of establishment of the recipient's economic activities does not have a fixed establishment for VAT purposes in the Member State in which the provider of the services concerned is established, even where the services are supplied pursuant to an exclusive contractual undertaking. In such a case, the human and technical resources of the provider of those services cannot be regarded as the resources of the recipient of the services for the purposes of the establishment of its fixed establishment, as the Belgian tax authority erroneously assumed.
What was at issue in this case?
Cabot Switzerland GmbH
- a Swiss company incorporated under Swiss law with its place of business in Switzerland
- VAT payer in Belgium
- the main operating company of the Cabot Group
Cabot Plastics Belgium SA
- a Belgian company
- part of the same group as Cabot Switzerland GmbH
Cabot Switzerland GmbH entered into an exclusive processing agreement with Cabot Plastics Belgium SA in 2012 under which:
- it stores raw materials (purchased by Cabot Switzerland) on its premises, processes them into products, stores those products, provides support for improving the manufacturing processes, planning activities, provides administrative support in relation to customs and excise duties, manages packaging materials and acts as a registered importer on behalf of and at the request of Cabot Switzerland;
- The provision of services for Cabot Switzerland constitutes almost all of the turnover of Cabot Plastics Belgium SA.
Based on a tax audit, the Belgian tax authorities concluded that the Swiss company had a fixed establishment in Belgium for VAT purposes. Following this tax audit, the Belgian company received a notice of additional assessment, together with a fine and interest totaling more than EUR 11 million, which the Belgian company disagreed with and brought an action against. Cabot Plastics therefore turned to the CJEU for an assessment.
Arguments of the Belgian tax authority:
- The technical resources constituting that fixed establishment are the production plants, the distribution center and the storage areas which belong to the Belgian company, but which used exclusively for the benefit of the Swiss company;
- The human resources that make up the fixed establishment are the employees of the Belgian company, who make it possible to make sales and provide processing and ancillary services for the Swiss company;
- The structure of the company enables it to receive and use the products resulting from the processing in order to carry out its own supply of goods in Belgium;
- the permanence of the establishment is sufficient, by reason of the fact that the agreement was concluded in 2012.
Arguments presented to the CJEU:
- The Swiss company has its established place of business in Switzerland;
- its office premises and employees are located in Switzerland, its strategic decisions and general policy decisions of the undertaking are taken there;
- its various contracts are concluded and its board of directors meets in Switzerland;
- It follows from all this that the place of business of the Swiss company is in Switzerland and that the place of supply of the service is therefore also in Switzerland and not in Belgium.
The Court of Justice of the European Union relies on and cites the following in its decision in Case C-232/22 of 29 June 2023
- judgment C-605/12, EU:C:2014:2298
- Article 44 of the VAT Directive
- Article 11 of Implementing Regulation No 282/2011
- judgment C-333/20, EU:C:2022:291
- judgment C-73/06, EU:C:2007:397
- Article 11 of Implementing Regulation No 282/2011 – means any establishment, other than the place of establishment of a business, which is characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources
- judgment C-605/12, EU:C:2014:2298 – for a company to be considered as having a fixed establishment in a Member State in which the services concerned are provided to it, it must have in that Member State a sufficiently permanent and suitable structure to enable it to receive the services concerned there and to use them for its business
- judgment C-333/20, EU:C:2022:291 – the fact that a company has a subsidiary in a Member State does not, in itself, mean that it also has its fixed establishment there. For a fixed establishment to exist, the taxable person must have the right to dispose of the human and technical resources in the same way as if they were its own.
- In its written submission, the European Commission states that since the service provider, although exclusive, remains responsible for its own resources and provides those services at its own risk and the conclusion of an exclusive contract does not in itself mean that the provider’s resources become those of its customer.
In addition, the CJEU informs that it is necessary to distinguish, first, the provision of those services and the capacity to receive them within an establishment and, secondly, the transactions which that taxable person carries out itself in the course of its business. The fact that the Belgian company facilitates the business of the Swiss company has no bearing on the question of the existence of a fixed establishment of the Swiss company in Belgium. This argument is based on judgment C-73/06, EU:C:2007:397, where the CJEU explains that a fixed establishment is not a fixed installation used only for preparatory or auxiliary activities in relation to the business of the recipient of the services concerned.