In Dong Yang Electronics (C-547/18), the Advocate-General was asked to opine on whether the Polish subsidiary of a Korean company was the fixed establishment of the Korean company, either simply by virtue of its existence or by virtue of other criteria about which the supplier should have made enquiries. Dong Yang, based in Poland, contracted with LG Korea (a Korean company) to assemble its printed circuit boards. LG Korea had a Polish subsidiary which managed the manufacturing process in Poland for LG Korea, delivering the components for the circuit boards to Dong Yang and collecting the finished items after assembly. LG Korea assured Dong Yang that it did not have a fixed establishment in Poland. Dong Yang treated its services as not being supplied in Poland but in Korea and therefore not subject to Polish VAT.

The Polish tax authority claimed that Dong Yang’s services had in fact been supplied to LG Korea’s Polish subsidiary, which was its fixed establishment. Unknown to Dong Yang, LG Korea’s Polish subsidiary also assembled circuit boards from components owned by LG Korea and provided storage and logistics services for the finished products. The finished products were sold by LG Korea to another Polish subsidiary of LG Korea, which in turn sold them on the European market.

The Advocate-General had no difficulty in answering the first question with a clear “no”; the structure of VAT law means that one cannot equate the place where a subsidiary is established to a fixed establishment of a parent company. The only exception to this answer could be in a case of abusive practice (which could be ruled out in this case). Even if there had been indications of abusive practice, the Advocate-General opined that tax authorities cannot oblige a taxable person to undertake complex and far-reaching checks – that is the duty of the tax authority. A taxpayer may be required to exercise a reasonable degree of care in determining the correct place of supply, but on the facts of this case it would have been impossible for Dong Yang to have found out about the arrangements between the Korean company and its subsidiaries.