Ruling description

On September 25, 2015, the Supreme Administrative Court issued a judgment (case file no. I FSK 578/15), in which it addressed the notion of “fixed establishment” for the purposes of VAT and the abuse of rights in connection with VAT.

The Supreme Administrative Court ruling was issued in a case involving a Polish taxpayer, which was similar to a case resolved in 2014 by the Court of Justice of the European Union (ECJ) in the C-605/12 judgement. This is one of the first Polish court awards regarding the fixed establishment issued after the ECJ judgment.

In the case at hand, the Polish company signed a contract with a business partner from Cyprus, whereby the Company agreed to perform the whole package of services necessary for an e-commerce service to function (an internet auction service organized by the Cypriot company) targeted at Polish users. The Company submitted that the services provided to the Cypriot counterparty are subject to VAT taxation in the country where the service purchaser is seated, i.e. in Cyprus (this is in line with the basic rule for determining the place of the provision of services under Art. 28b of the VAT Act). Tax authorities ruled that the Polish business partner has a fixed establishment in Poland and that the services were therefore provided by the Polish company for the Polish fixed establishment. Consequently, the services provided by the Polish company ought to be subject to VAT taxation in Poland.

The Provincial Administrative Court agreed with the tax authority’s case. Moreover, the Supreme Administrative Court dismissed the last resort appeal filed by the Polish company. The Court pointed out that although the business partner is registered in Cyprus, the entire business activity is conducted in Poland, considering that the service is to a large extent maintained and provided by the Polish company, and that it is targeted at Polish consumers. For this reason, a Cypriot taxpayer has a fixed establishment in Poland and the services provided to the Cypriot taxpayer ought to be taxed in Poland.

In the judgment on appeal, the Supreme Administrative Court also touched upon the notion of an abuse of a right in connection with VAT. The Court noted that according to a rights abuse test, if an artificial structure has not been developed due to economic or business needs and the prevalent purpose of this structure is to pay a substantially smaller tax or not to pay tax at all, a taxpayer must not benefit from the solutions/benefits available under the VAT Directive. The Supreme Administrative Court announced that in the written statement of grounds it will address in more detail the question whether the law has been abused in the case at issue.


The judgment at issue is of crucial importance for taxpayers, who – in collaboration with foreign contractors – provide or receive services to/from these contractors, especially in outsourcing models. In light of the judgment, Polish taxpayers acquiring services from foreign contractors (especially in the outsourcing model) may be found to perform their activities in the contractor’s country of residence through a fixed establishment, and therefore may be subject to VAT in this country. Conversely, for taxpayers providing services to foreign contractors (as is the case in the lawsuit at stake), they run the risk of being deemed to provide services for the benefit of the contractors’ fixed establishment in Poland. In such a situation, the tax authorities may make an assessment of overdue VAT and charge default interest. Special attention needs to be paid by e-commerce and electronic businesses where no substantial human or technical resources need to be involved. In those sectors, tax authorities will find it easier to deem that the contractor’s assets became an overseas fixed establishment of these businesses. When assessing this risk, it will also be necessary to take into account the Supreme Administrative Court’s conclusions regarding right abuse tests in light of VAT regulations.

Additionally, we note that the Supreme Administrative Court’s judgment does not relate to one of the most essential issues as regards the interpretation of the term “fixed establishment”. It was pointed out in ECJ judicature that a fixed establishment may be created by human and technical resources of a different taxpayer, but only if the ‘first taxable person’ has a comparable degree of control over these resources as it has over its own resources. This premise was not discussed in detail (at least in the oral discussion of the statement of grounds), and therefore it will be necessary to verify this issue once again after the written version of the statement of grounds is published.