The Court of Justice of the European Union (CJEU) has held that where a customer receives services based on an exclusive contract for the provision of services in a state other than the state in which their business is located, the resources of the provider of these services cannot be regarded as the customer’s resources, and therefore no fixed establishment arises for the customer.
In the present case (Judgment C-232/22), Cabot Switzerland, established in Switzerland, concluded a tolling contract with Belgian Cabot Plastics. Both companies are part of one corporate group and are financially related. Based on the tolling contract, Cabot Plastics uses its equipment exclusively for the benefit of Cabot Switzerland (processing raw materials into products used in the manufacture of plastics). In addition, it provides other services such as storage of products, technical checks, administrative support in customs procedures, etc.
The Belgian tax authorities took the view that because of Cabot Switzerland's exclusive use of Cabot Plastics' technical and human resources, Cabot Switzerland had a VAT fixed establishment in Belgium. The tax authorities thus held that all services provided by Cabot Plastics were subject to tax in Belgium.
The case was brought before the CJEU, which held that the basic rule for determining the place of supply is the place where the service recipient has established its business. This is an objective criterion for determining the place of supply. An exception to this general rule is taxation at the place of a fixed establishment but only if the application of the general rule is not rational and double (non)taxation could occur.
The CJEU concluded that Cabot Plastic as the provider of technical and personnel resources remained responsible for these resources and provided the services at its own risk. A contract for the provision of services, even an exclusive one, does not in itself mean the resources of the service provider become those of its customer. The same resources cannot be used simultaneously on both sides of the transaction, i.e., for the provision of services by Cabot Plastics and at the same time for receiving services by Cabot Switzerland.
The CJEU therefore concluded that Cabot Switzerland was receiving services in Switzerland and that Cabot Switzerland did not have an appropriate human and technical resources structure in Belgium. The court thus confirmed its previous conclusions, e.g., in Case C-333/20 Berlin Chemie, to which reference was made in the present case.