09 Dec Fixed establishment
1. Definition of fixed establishment
The concept of fixed establishment is one of the most important concepts in VAT. The interpretation of this term may be decisive in establishing the place of supply of given services as well as the possibility of applying the reverse charge mechanism.
The definition of fixed establishment developed primarily through the Court of Justice of the European Union (CJEU) case law. Later it was introduced to the EU legislation.
The legal definition of fixed establishment was created on 1 July 2011 only. According to the definition of the Council Implementing Regulation No 282/2011 of 15 March 2011, laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, a ‘fixed establishment’ means any establishment, other than the place of establishment of a business, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which that fixed establishment supplies.
The following elements constitute a fixed establishment:
– time over which the permanent place is maintained;
– technical resources;
– human resources;
– the ability to receive and use services.
2. Change in the interpretation of a fixed establishment
Until recently, the above mentioned criteria were deemed fulfilled only in the case of foreign entities with own infrastructure and personnel i.e. only foreign companies possessing technical resources (e.g. machinery, warehousing) and personnel employed on the basis of a labour contract were regarded as entities with a fixed establishment in a given country.
However, the interpretation has Keeping changed. In a judgment of 16 October 2014 in the case of C-605/12 Welmory Sp. z o.o. the CJEU expanded the scope according to which a company may be viewed as having a fixed establishment in another Member State. The CJEU held that, for a fixed establishment to exist, a w company must have a sufficient degree of permanence and human and technical resources to allow it to receive and use the services for its economic activities. While not explicitly stated, the judgment implies that the resources did not need to belong to the company in order to create a fixed establishment of that company (i.e. a fixed establishment may be created by a third party’s resources). However, a foreign entity should have control over these resources.
The same position was also presented in one of preliminary rulings issued by a Polish administrative court after the Welmory judgement: the Judgement of the Provincial Administrative Court of 15 June 2015 (file no. III SA/Wa 3332/14). It is worth noting that similar rulings of Polish courts, referring to the Welmory case, are given increasingly often.
3. Tax implications
It should be noted that there is a change in approach of Polish tax authorities and administrative courts regarding Divers the concept of fixed establishment. This change of position may cheap nba jerseys result in an increasing number of disputes on this subject.
It can be expected that the Polish tax authorities and administrative courts will now put forward more frequently that foreign entities with their registered place of business outside Poland actually have their fixed establishment in Poland.
The most important consequence of having a fixed establishment in the same Member State cheap nba jerseys as the supplier is that for the place of supply rules, the service is taxable in the Review: Member State of the fixed establishment. cheap nfl jerseys Other consequences to foreign entities could involve the requirement to pay the Polish valueadded tax on Advertisement provision of services or delivery of goods to Polish taxpayers. The change in the manner of gospodarczej VAT settlement will apply to the services rendered by Polish companies to foreign entities as well. This is because having a fixed establishment in Poland by service beneficiaries will result in the necessity of settling the VAT due by Polish service providers (the reverse charge mechanism will not be applicable in this case).
Therefore, both foreign suppliers and Polish companies with counterparties abroad should each time analyse if the structure the foreign entity has in Poland is sufficient for it to be regarded a fixed establishment.