On May 7th 2020 the Europen Court ruled in the case C 547/18 (Dong Yang Electronics Sp. z o.o. v Dyrektor Izby Administracji Skarbowej we Wrocławiu) that „the existence, in the territory of a Member State, of a fixed establishment of a company established in a non-Member State may not be inferred by a supplier of services from the mere fact that that company has a subsidiary there, and that supplier is not required to inquire, for the purposes of such an assessment, into contractual relationships between the two entities.”

In 2010 a company incorporated under Polish law, Dong Yang, signed a contract for the supply of services with a company incorporated under Korean law, LG Korea. Dong Yang was supposed to assemble printed circuit boards (PCB) from components and materials supplied by a subsidiary of LG Korea, LG Display Polska.  

Dong Yang did not charge VAT on the invoices for services provided to LG Korea as it has been informed by LG Korea that it did not have a fixed establishment in Poland i.e. it did not employ anyone nor had technical resources and immovable properties.

The Director of the Tax Administration Chamber, Wrocław decided that Dong Yang has supplied services in Poland as LG Poland constituted a fixed establishment of LG Korea and claimed from Dong Yang the amount of VAT for provided services. According to the Director of the Tax Administration Chamber, Dong Yang should have investigated contractual relationships between two companies and conclude that the beneficiary of services was in fact LG Poland.

    Dong Yang did not agree with that and the continuation of this case took place in court. The Regional Court decided that a clarification from the Court of Justice is required, and the request for a preliminary ruling was sent:

1.            “Can it be inferred, from the mere fact that a company established outside the European Union has a subsidiary in the territory of Poland, that a fixed establishment exists in Poland within the meaning of Article 44 of Directive 2006/112 … and Article 11(1) of Implementing Regulation No 282/2011 … ?

2.            If the first question is answered in the negative, is a third party required to examine contractual relationships between a company established outside the European Union and its subsidiary in order to determine whether the former company has a fixed establishment in Poland?”

The European Court has ruled as quoted above. This judgment is an important one for suppliers involved in providing services to foreign companies e.g. storage, labeling or logistics services. Tax authorities have been very keen to recognize in such situation a fixed establishment so this case may change this approach.

More details can be found in the ruling here.

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