Fixed establishment

CJEU clarifies concept of fixed establishment

Aiki Kuldkepp
focused office colleagues working on laptop
The Court of Justice of the EU (CJEU) has recently further clarified the concept of a fixed establishment (FE) for VAT purposes in its important decision in the case C-232/22 (Cabot Plastics Belgium SA). On 29 June 2023, the CJEU held that a toll manufacturer in Belgium acting under an exclusive contract did not constitute an FE for its affiliated Swiss principal.

The CJEU has previously already addressed the question whether a subsidiary (or other legally independent entity) can constitute an FE of another company. For example, in its judgement in the case C-333/20 (Berlin Chemie), it stated that a legally independent entity belonging to the same group may create an FE for an affiliated company when it can dispose of the former entity's resources as if they were its own.  

The main difference between the current Cabot Plastics and the previous Berlin Chemie case is that in the current case, the service provider belonging to the same group does not only provide sales’ support services to its principal but also toll manufacturing services. In its judgment of Cabot Plastics, the CJEU largely follows its judgment in Berlin Chemie and states that the toll manufacturing and ancillary logistical and sales’ support services do not create an FE for a receiving company, even if they are provided under an exclusive basis. 


A Swiss company Cabot Switzerland GmbH (Cabot CH) concluded a tolling contract with a legally independent Belgian company Cabot Plastics (Cabot BE) belonging to the same group. Final products were sold by Cabot CH from Belgium to various customers on the Belgian market, on the EU market or for export.  

Next to the toll manufacturing, Cabot BE also provided a series of additional services under the exclusive agreement with Cabot CH, in particular, storage of its products, making recommendations and providing support regarding the manufacturing process, facilitating customs formalities, providing compliance with various standards as well as customs and excise duties.  

The Belgian tax authority came to the conclusion that Cabot CH had an FE in Belgium for the purposes of the VAT and that, accordingly, the services provided by Cabot BE to that company between 2014 and 2016 had to be regarded as taking place in Belgium and subject to VAT in Belgium.  

Questions referred to the CJEU 

The referring court found that the CJEU had not yet ruled on a case sufficiently similar to the present one, capable of dispelling any doubts as to the interpretation to be given to the applicable EU law. It noted, in that respect, first, that Cabot BE is a legally separate entity from Cabot CH, and second, that the tax authority regards Cabot BE both as a service provider and as constituting the technical and human resources of Cabot CH in Belgium. Therefore, it raised the question of whether Cabot CH has a suitable structure, in terms of its own resources, constituting its FE in Belgium, where those resources belong to Cabot BE providing services to it, but  in accordance with a contract concluded between Cabot CH and Cabot BE, the latter undertakes to use those resources, exclusively or almost exclusively, to provide those services.  

The referring court also questions the effect which the supply of goods by Cabot CH in Belgium, using technical and human resources of Cabot BE, could have on identifying an FE of Cabot CH in that country. 

The issue is whether an FE is created for Cabot CH in Belgium by its service provider if the latter supplies it, in agreement with an exclusive contractual undertaking, not only toll manufacturing but also a series of ancillary services, thus contributing to the completion of sales of goods by Cabot CH in Belgium? 


FE requires a suitable structure to enable receiving the services  

The CJEU referred to its previous decision in case Welmory (C-605/12) by stating that to be considered as having an FE in another country, it must have a sufficiently permanent and suitable structure in that country to enable it to receive the services concerned there and to use them for its business. 

Furthermore, the CJEU referred to its earlier decision in C-333/20 (Berlin Chemie) by stating that: 

  1. Although a subsidiary/separate legal entity can create an FE for a company belonging to the same group, the fact that a company has a subsidiary in another country does not, in itself, mean that it also has its FE there.  
  2. The disposal of resources as if they were its own is required for an FE to be created. 
  3. An exclusive contract does not mean that an FE is created. 
  4. Even if an FE is created because of sales of goods, this does not mean that services are received by the same FE. 
  5. Preparatory or auxiliary activities do not create an FE for the receiving company. 
  6. Services cannot be both supplied and received by the same FE. 

The CJEU concluded that a business does not have an FE as a result of receiving services from an affiliated company, where that recipient does not have a suitable structure in terms of human and technical resources capable of constituting that FE. 

Consequences for practice 

This decision is also important for other sectors than toll manufacturing and provides further clarity for internationally operating companies. 

Although, in the Netherlands, the staff and technical means of a legally independent (affiliated) entity are generally not considered to constitute an FE of another entity, the issue has caused a lot of controversy in several other countries, such as Belgium and Poland. After this decision, the tax authorities of the latter countries have less room to argue that a service provider in the EU country can create an FE for its affiliated entity who sells its goods in this country. Therefore, the case is  very welcome for businesses operating internationally, as it provides more clarity on the interpretation of concept of FE and offers guidance and support in discussions with tax authorities. 

The existence of an FE is very relevant for B2C supplies, but also for B2B services (e.g. in place of supply issues, the applicability of the reverse charge) or even supply of goods (e.g. the applicability of the EU call-off stock simplification).  

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