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Poland: Subsidiary not just fixed establishment of parent company for VAT purposes

Poland: Subsidiary not just fixed establishment

The Advocate General of the Court of Justice of the European Union (CJEU) on 14 November 2019 rendered an opinion in a case concerning whether a subsidiary that is established in the European Union is to be regarded for value added tax (VAT) purposes as a fixed establishment of a parent company established outside the EU. According to the Advocate General, it is not unless there is an abusive contractual structure.


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The case is: Dong Yang Electronics (C-547/18)

KPMG observation

In the Netherlands, for instance, a subsidiary is in principle not regarded as a fixed establishment. If the CJEU does not follow the opinion of the Advocate General, this case could have major implications for the current Dutch practice. 


A company in Poland assembles printed circuit boards for a Korean entity. This assembly qualifies as a service for VAT purposes, with the right to levy VAT being allocated to the country where the customer is established or has a fixed establishment. The Polish company obtains the components from a second Polish subsidiary of the Korean entity, but the Korean entity remains the owner. After assembly, the company in Poland sends the printed circuit boards back to the other Polish entity. The Polish company issues invoices, without VAT, to the Korean entity.

The Polish tax authorities argued that Polish VAT was required and that the Polish subsidiary qualifies for VAT purposes as a fixed establishment of the Korea entity and that this fixed establishment is the actual beneficiary of the services of the company in Poland. The case was referred to the CJEU to address whether:

  • Can it be inferred from the mere fact that a company established outside the European Union has a subsidiary in Poland, that this company has a fixed establishment in Poland?
  • If not, is the supplier obliged to examine the contractual relationships between the customer established outside the EU and its subsidiary in the EU in order to determine whether there is a fixed establishment?

With regard to the first question, Advocate General Kokott concluded that, in principle, a subsidiary of a company established outside the EU would not be regarded as a fixed establishment for VAT purposes.

In answer to the second question, the Advocate General concluded that a service provider does not have to examine inaccessible contractual relationships between its customer and their subsidiaries in order to determine that the customer actually uses this subsidiary as if it was a fixed establishment for VAT purposes. Insofar as there are no indications to the contrary, a taxpayer may rely on a written statement from its customer that it does not have a fixed establishment.

Read a November 2019 report prepared by the KPMG member firm in the Netherlands

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