ECJ Berlin Chemie : subsidiary is not a permanent establishment for VAT purposes

On 7 April, the EU Court of Justice ruled in Berlin Chemie (No C-333/20), a case concerning the concept of 'fixed establishment' for VAT purposes. In short, the ECJ ruled that a parent company does not have a fixed establishment in another Member State when it has a subsidiary there that provides sales support services. In this news item we discuss the judgment of the European court and the possible consequences for your company.


A VAT-payer’s fixed establishment is a connecting factor for levying VAT. The fixed establishment determines, inter alia, whether VAT is due and where services are subject to VAT. Since 2011, the term fixed establishment has been defined in the Implementing VAT Regulation (EU) No 282/2011). It must be an establishment characterised by a sufficient degree of permanence and a suitable structure - in terms of staff and technical resources - to enable it to receive and use the services. In practice, the interpretation of the concept regularly leads to disputes with the VAT authorities in another EU Member State.

A few years ago, the European Court of Justice handed down a remarkable decision re Dong Yang Electronics (No. C-547/18). The Court found that it is possible that a subsidiary constitutes a fixed establishment of its parent company, but whether that is the case depends on whether the substantive conditions in the Regulation No 282/2011. The mere fact that a parent company has a subsidiary in another Member State does not mean that the company has a fixed establishment there.

The Dong Yang decision caused some consternation. Contrary to earlier assumptions, the Court seemed to be of the opinion that the concept of fixed establishment is not necessarily limited by the legal autonomy of the companies concerned.

Berlin Chemie:

Berlin Chemie AG is a German company of the Menarini group that has marketed pharmaceutical products in Romania continually since 1996. It has a storage contract with a Romanian company and a VAT tax representative in Romania and is registered for VAT there.

In 2011, a Romanian company, Berlin Chemie A. Menarini SRL, was incorporated to provide marketing and other support services to promote the sale of these pharmaceutical products. Taking the view that the services are liable to VAT in Germany under the reverse charge procedure, the Romanian company issued invoices without VAT to the German company, its sole customer. The Romanian VAT authorities did not agree. They took the view that the German company had a fixed establishment in Romania and that the services were received by the German company in Romania.

That assessment was made principally on account of the technical and human resources of the Romanian company, to which the German company had continuous access. The German company had access to technical resources owned by the Romanian company, such as computers, operating systems and cars.


The court states that the existence of a fixed establishment for VAT purposes must be assessed in the light of economic and commercial reality. It is not required that the VAT-payer must possess the technical means, or that the staff is bound to him by employment contracts. This would be too restrictive an interpretation of the concept of fixed establishment. Where an entrepreneur does not himself have the human and technical resources in another Member State, the existence of a permanent establishment requires that he should have at his disposal those resources of another Member State as if they were his own.

The Court rejects the view of the Romanian inspector, that the resources of the Romanian company do not only constitute a fixed establishment of the Germany company, but that they are also used by the Romanian company to provide sales support services to the Germany company. The same resources cannot be used to provide services and to purchase the same services. It follows from European VAT law that a parent company does not have a fixed establishment if it has a subsidiary in another Member State that uses its resources on an exclusive basis to provide sales support services to the parent company.

Practical relevance

The Court of Justice of the EU does not just consider a subsidiary to be a permanent establishment of the parent company - even if that subsidiary is under its control. The resources of a subsidiary cannot be a permanent establishment and at the same time be used to provide services to that permanent establishment.

However, in this decision, the Court of Justice does not explicitly reverse its earlier consideration that a subsidiary can constitute a permanent establishment of its parent company. That is still possible in certain situations.

In practice, we see that the VAT authorities in certain countries have a low threshold when interpreting the concept of fixed establishment. E.g., a stock in another country can be a fixed establishment, even when it is managed by an independent warehouse operator. Such interpretations of the concept regularly lead to disputes with (foreign) tax authorities about the liability for VAT, administrative obligations and VAT registrations

It is also important to determine whether the deployment of human and technical resources in other countries results in a foreign fixed establishment for VAT purposes. We note that the existence of a (foreign) permanent establishment can have a major impact on, among other things, the liability for VAT, administrative obligations and VAT registrations.