26 February 2020 The Supreme Administrative Court (NSA) issued a judgment on the permanent place of business for VAT purposes of an entrepreneur established abroad. The judgment may be important for foreign entrepreneurs, but also for contractors providing services to such customers on entrusted materials.
In the case under consideration, an entrepreneur with its registered office in Germany concluded an agreement for an indefinite period of time with a service provider in Poland - both entities belonged to the same capital group. On the basis of the agreement, the contractor provides the service of refining the entrusted materials using tools made available to him by the German entrepreneur. After the refining process, the goods are sent back to Germany. The Polish contractor provides a storage place for the materials sent from Germany and goods resulting from the refining and performs the service itself. The German entrepreneur employs one employee in the country, whose task is to search for new customers, analyse the market and represent the employer at trade fairs. The essence of the proceedings was whether the foreign entrepreneur has a permanent place of business for VAT purposes in Poland.
Permanent place of service performance, meaning what?
DIS decided that the continuous use of the warehouse and the refining of goods by the entrepreneur is sufficient to create a permanent place of services performance under VAT regulations. Pursuant to the provision of Article 11 sec. 1 of Council Regulation (EU) 282/2011, it is any place other than the place of establishment of the taxable person's business, characterised by sufficient constancy and adequate personnel and technical facilities to enable the receipt and performance of services supplied for the purposes of that fixed place.
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The decision of the Court was that the infrastructure owned by the entrepreneur is sufficient to create a fixed place of business. Admittedly, the justification of the NSA's ruling has not yet been published, therefore the justification of the ruling of the lower court should be referred to. The Provincial Administrative Court ruled that continuous business activity is sufficient for the establishment of a permanent place of business in Poland, for which concluding an agreement for an indefinite period of time is sufficient.
The court appealed to the CJEU case law, according to which a permanent place of business does not have to have its own employees or technical facilities, stressing that a similar effect will be achieved by using employees performing the service on condition that the entrepreneur has control over these employees and technical facilities comparable to having own resources. In the present case, in view of the court, the fact of using the entrusted space, equipment and personnel of the service provider, as well as the fact of hiring an employee in Poland, are evidence of having a fixed place of business here. However, the Court did not consider it significant that the services provided by the contractor were neither intensive nor frequent. It was also not significant for the Court that management decisions of the entrepreneur are made abroad.
The judgment is important for a foreign entrepreneur who has established permanent cooperation with a contractor performing services on the entrusted material. As a result of such a judgment, the risk of the tax authorities recognising that the entrepreneur has a permanent place of business in Poland increased. In such a situation, the entrepreneur must register for VAT in Poland and maintaining standing financial reporting. Moreover, the Polish service provider would be obliged to settle the VAT due on services provided for the permanent place of business with the tax office.
To sum up, the effects resulting from the NSA judgment are significant both for foreign entrepreneurs and for their Polish contractors. Therefore, we recommend reviewing contracts concluded with contractors and determining the extent to which the foreign contractor uses the employees and infrastructure of the Polish contractor.
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Should you have any questions or wish to discuss the topic further, we encourage you to contact our expert, Daniel WIĘCKOWSKI:
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