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Dr. Sandra Ragaz-Fumia
Leader Pharma & Life Science Consulting for Regulatory & Indirect tax, PwC Switzerland
Usman Mohammad
Director, PwC Netherlands
The concept of VAT fixed establishments has been a topic of significant interest in recent years, drawing attention from the European Court of Justice (ECJ). In a recent case involving a Swiss company and its Belgian subsidiary, the ECJ has clarified that a tolling agreement does not constitute a VAT fixed establishment in Belgium. This ruling brings clarity and has implications for Swiss established companies operating internationally. In this blog post, we will delve into the details of the case and explore the recommendations for Swiss established companies based on this ruling.
The case revolves around Cabot Switzerland GmbH (hereinafter ‘Cabot CH’), a Swiss company within the Cabot Group. Cabot CH is engaged in the sale of carbon-based products in Belgium and is registered for VAT purposes there. A tolling agreement was established between Cabot CH and its affiliated trading company, Cabot Plastics, on the basis of which Plastics GmbH utilises its own equipment to manufacture plastics exclusively for the benefit of Cabot CH. The majority of Cabot CH’s income is derived from the services provided by Cabot Plastics. Additionally, Cabot Plastics offers customary tolling services such as storage, quality checks and administrative support and acts as an intermediary for import-related matters on behalf of Cabot CH.
The Belgian tax authorities conducted a tax audit in 2017, asserting that Cabot CH had a fixed establishment in Belgium for VAT purposes. They argued that the services provided by Cabot Plastics to Cabot CH should be subject to Belgian VAT, as the place of supply for VAT was deemed to be in Belgium. However, Cabot Plastics contested this, asserting that the services were performed in Switzerland and should not be subject to Belgian VAT.
After receiving preliminary questions from the highest Belgian administrative court, the ECJ concluded that Cabot CH does not have a fixed establishment in Belgium under the tolling agreement. The ECJ stated that the absence of an appropriate structure in terms of human and technical resources precluded a fixed establishment in Belgium for Cabot CH. The fact that Cabot Plastics was a separate legal entity did not, in itself, negate the possibility of Cabot CH having a fixed establishment for VAT purposes in the same Member State. Furthermore, the ECJ clarified that the resources, even though owned by Cabot Plastics, should be accessible to Cabot CH as if they were its own resources for a fixed establishment to be considered.
The ECJ emphasised that there were two distinct activities to be considered: the tolling services provided by Cabot Plastics to Cabot CH and the subsequent sale of goods by Cabot CH resulting from those tolling services. The determination of the place of service and the use of human and technical resources associated with these services was crucial. However, the ECJ noted that the same resources could not be used both to provide and receive the services.
Based on this ruling and its implications, Swiss established companies operating across multiple Member States should take the following recommendations into account:
The recent ECJ ruling has clarified that a tolling agreement does not establish a VAT fixed establishment in Belgium. This ruling brings much-needed clarity for entrepreneurs operating under similar arrangements. Swiss established companies should assess their fixed establishment status in various Member States, seek professional guidance and review their tolling agreements accordingly. Staying informed about legal developments is crucial to ensure compliance with VAT regulations. By following these recommendations, Swiss established companies can navigate the complexities of VAT obligations and continue their cross-border operations with confidence.The draft implementing regulation will be formally adopted by the Commission later this summer after a vote in the CBAM committee, which consists of representatives from EU member states. This will follow the period of public consultation, which ends on 11 July 2023.
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