In October 2014, the ECJ ruled the case Welmory (C-605/12) from which case it might be arguable that there could be a presence of fixed establishment in a EU Member State in case there is external (third party) human and technical resources presence in another EU Member State than the primary seat of the service provider; allowing the service provider to supply its services via e.g. an IT structure. Moreover, it could be arguable whether the latter also applies to IT structures owned by the VAT taxable person offering the service.

Facts and ruling

The Polish company Welmory sp z.o.o. (“Welmory Poland”) and the Cypriot company offering internet auction services Welmory Ltd. (“Welmory Cyprus”) signed a agreement. based on which Welmory Cyprus and Welmory Poland agree to cooperate, i.e., Welmory Poland would provide services making it available for Welmory Cyprus to offer an internet auction website with a Polish domain name. Welmory Poland also offered associated service for running the internet auction service; services as leasing of the server and display of the goods to be auctioned. Welmory Cyprus used the technical equipment and employees of Welmory Poland in order to offer the internet auction services. Furthermore, Welmory Poland sold the products auctioned on its own name and on its own account to its customers.

In order for the customers to submit a bid, the customers needed to purchase a number of bids from Welmory Cyprus. These bids gave the customer the right to take part of the online auction site operated on the technical resources offered by Welmory Poland. In order for a customer to make a bit the customer had to use it pre-paid bids and in case the customer offered the highest price, the goods were sold to the customer.

Welmory Poland issued invoices for its services to Welmory Cyprus in 2010, treating it as a B2B supply for which the place of supply was Cyprus (place of establishment of Welmory Cyprus) and the VAT due was shifted (reverse charged) to Welmory Cyprus. However, the Polish Tax Authorities considered that the service provided by Welmory Poland, were services provided to a Polish fixed establishment of Welmory Cyprus, and thus, Polish VAT should have been charged.

The main question was whether there is a fixed establishment if the recipient of these services uses external human and technical resources (of the person supplying the services).


The ECJ repeated established case law (Berkholz) in relation to the concept of a fixed establishment and the place of supply rules. The ECJ clearly stated that for applying the B2B place of supplies rules (place of supply is place of establishment of te customer) in principle the place of establishment of the customer i.e. the place where the place where the customer has established its business is the primary point of reference, unless this does not lead to a rational result and the place of supply should be regarded as the place where another establishment, with a minimum size of both human and technical resources is present. The question to whether or not Welmory Poland could be regarded as a fixed establishment from Welmory Cyprus, as external human and technical resources where present in Poland, was not clearly answered by the ECJ.

However, the ECJ did not deny that Welmory Poland could be regarded as an establishment which could be regarded as a fixed establishment of Welmory Cyprus as there was a presence in Poland of (external) human and technical resources. Based on the ECJ case it is still arguable that there is a fixed establishment for EU VAT purposes in the specific case that e.g.:

  • a sever is present in a EU Member State allowing the a service provider established in another country to provide its services through a third party hosting service+ arrangement (service as described above in relation to the Welmory case); or
  • in case such service providers owns such servers allowing it to provide its service through such IT structure, to the final customer.

It is a pity that the ECJ did not clearly stated if, and in what circumstances, external human and technical resources would be sufficient for the finding of a fixed establishment. However, if the ECJ deemed external resources not to be sufficient the ECJ would in our opinion included this very clearly.