The Provincial Administrative Court in a ruling of June 15, 2015 (case file number: III SA/Wa 3332/14) found that a taxpayer should have a fixed establishment in Poland if it rents a warehouse in Poland and benefits in Poland from services such as office support, translation services etc.
Pursuant to Article 28b of the VAT Act, the place of providing services, in terms of the services provided to a taxpayer, is the place where the taxpayer, as recipient of the services, has established its business. If the services are provided for a taxpayer’s fixed establishment, which is located in a different place than the taxpayer’s place of establishment of its business, the fixed establishment is the place where the said services are provided. Hence, in order to determine whether the services provided to a foreign taxpayer by Polish contractors are subject to VAT in Poland, it is necessary to determine whether a foreign taxpayer has a fixed establishment in Poland.
The VAT provisions and regulations provide no definition of a fixed establishment. This is an EU term which follows from the Sixth Council Directive 77/388/EEC and Council Directive 2006/112/EC. The term “fixed establishment” was also explained in the Council Implementing Regulation no. 282/2011 which established implementation measures for Directive 2006/112/EC on the common system of value added tax. Pursuant to Article 11 Section 1 of the Implementing Regulation, for the purposes of application of Article 44 of Directive 2006/112/EC, “a fixed establishment” means any place, other than the taxpayer’s place of establishment of a business, which is characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs. Whereas, pursuant to Article 11 Section 2 of the Implementing Regulation, “a fixed establishment” means any place other than the place of establishment of a business which is characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which it supplies.
Pursuant to the aforementioned regulations, the Minister of Finance and, subsequently, the Provincial Administrative Court in Warsaw found that it is not necessary to engage one’s own technical and personal resources in order for there to be a fixed establishment within the meaning of Article 44 of the 112 Directive. It is sufficient if a company uses the resources provided by another entity. Both the court and the tax authority found that the Finnish company (a boat manufacturer) which rents a warehouse in Poland and benefits in Poland from office support services, translation services, etc. does have certain resources and acquires a certain set of auxiliary services which may be deemed as characteristic for running a fixed establishment. Consequently, the services which the Polish contractors provide to the Finnish entity are subject to VAT in Poland..
The ruling handed down by the Provincial Administrative Court in Warsaw merits a negative assessment. In the discussed matter, the court analyzed only part of the tests which must be satisfied in order to determine whether a taxpayer established in a foreign country a fixed establishment for VAT purposes. As follows from the court rulings handed down by the Court of Justice of the European Union, it is not necessary to maintain one’s own personal and technical resources in a foreign country in order to have a fixed establishment (e.g. rulings case file numbers: C-260/95 DFDS and C-605/12 Welmory). This means that a foreign entity which subcontracts certain functions to a contractor in Poland may be deemed to be an entity with a fixed establishment in Poland. The condition, however, is that the said foreign entity should be entitled to similar control over the human and technical resources of its contractor as it has over its own resources. The Provincial Administrative Court failed to consider this question in the analyzed resolution. One may only trust that, at the next stage of the proceedings, the Supreme Administrative Court will correctly consider all the circumstances. We recommend that clients which receive services from subcontractors other than in the country which hosts the place of establishment of their business observe the practice of the tax authorities in terms of a fixed establishment for VAT purposes.