The Court of Justice of the European Union (CJEU)14 has confirmed that when determining the supply of services for VAT purposes for an entity to have a “fixed establishment” it must have:

  1. a sufficient degree of permanence; and
  2. be suitable in terms of both human and technical resources to enable it to receive the services supplied to it and use them for its business.


Welmory sp. z.o.o. (the Polish company), entered into a co-operation agreement with Welmory Limited (the Cypriot company) in 2009. Under this agreement, the Cypriot company provided to the Polish company the service of making available an Internet auction site for the Polish company to sell goods on.

Between January and April 2010, the Polish company issued four invoices for the services that they had supplied to the Cypriot company (advertising, servicing, information and data processing services). They did not invoice VAT, taking the view that those services had been supplied at the place of establishment of the Cypriot company, and would thus be subject to VAT in Cyprus.

However, Dyrektor Izby Skarbowej w Gdańsky, the director of the tax chamber of Gdańsky (the Dyrektor) asserted that these services had been supplied to the Cypriot company’s fixed establishment within Polish territory, and should have been taxed in Poland. The dispute on VAT was brought before the Regional Administrative Court of Gdańsk and then the Supreme Administrative Court of Poland, which subsequently referred the question to the CJEU.

The question raised was: “In what circumstances a first taxable person (the Cypriot company) who has established his business in one Member state, and receives services supplied by a second taxable person (the Polish company) established in another Member state, must be regarded as having a “fixed establishment” within the meaning of the VAT Directive in that other member state, for the purpose of determining the place of taxation of those services”.


Article 9 of the Sixth Directive (Article 9) previously determined the place of the supply of services to a taxable person by reference to the supplier. Its successor, Article 44 of the Principal VAT Directive (Article 44), determines the place by reference to the receiver. The CJEU ruled that case law dealing with Article 9 would be relevant to the application of Article 44. As such, for a fixed establishment to be present there needed to be a sufficient degree of permanence, and suitable resources to enable it to receive the services supplied to it and use them for its business.

The Dyrektor argued that the companies’ economic activities formed an economic whole and thus their results were of benefit to consumers in Poland. The CJEU decided that this was not material for deciding where the Cypriot company had a fixed establishment. Independent enterprises must be considered separately, and the services supplied by the Polish company to the Cypriot company must be distinguished from those supplied by the Cypriot company to consumers in Poland.

The Polish company had argued that the infrastructure available to the Cypriot company does not enable it to receive and use for its business the services supplied to it by the Polish company. The human and technical resources for the Cypriot company’s business were also situated outside of Polish territory. The CJEU indicated that if these facts were shown to be correct then the Cypriot company would not have a fixed establishment in Poland. However, it is for the national court to decide whether a company has a fixed establishment in their territory.


This case confirms that the concept of a “fixed establishment” has survived the change from Article 9 to Article 44, and that the previous decisions made in respect of Article 9 can still be relied upon.

In addition, the case is a reminder to companies working across EU jurisdictions to avoid effecting a fixed establishment within another company which could result in unexpected VAT liabilities.

To read the judgment click here.