Creation of a permanent establishment in the case of subsidiaries

We have an interesting judgement regarding VAT for you. The Court of Justice of the EU was dealing with the question of whether the permanent establishment of a parent company can be created for VAT purposes in another EU member state (where the subsidiary resides) if the subsidiary provides the parent company with marketing and other services (e.g. regulatory, advertorial and representative services), and those services are invoiced monthly.

The European Court of Justice confirmed that the existence of a subsidiary in another EU member state does not automatically mean the creation of an establishment for the VAT purposes. It also dealt with the question of whether the relevant technical and human resources must belong solely to the parent company, so that a permanent establishment in another member state is created. The Court confirmed former findings that it is not necessary for the taxable person to have own resources, but that it is enough if the taxable person can use the resources as its own. It is also necessary that the resources be not used only occasionally.

The European Court of Justice also emphasised that the same human and technical resources cannot be used at the same time for the provision and receipt of the same services by the subsidiary for its own economic activities.