Spanish Tax Court has issued a recent judgment analyzing the concept of a fixed establishment (FE) and its consequences in the denial of the reverse charge rule application.
The case analyzed consists of a non-established entity that supplies certain goods to its subsidiaries established in Spain — acting in their own name but on behalf of the parent company — applying the reverse charge mechanism. The subsidiaries then supply those goods to Spanish customers charging the corresponding VAT.
One of the most relevant aspects to take into account when concluding that the subsidiaries are an FE is their dependency on the parent company (if they need the authorization of the parent company to sign contracts, etc.). If the relationship between the subsidiary and the parent company is just the one derived from the agency agreement, the subsidiary will not constitute an FE (as an independent agent).
In the case at hand, the parent company is in charge of supplying marketing material, technical assistance and training, as well as an adequate system and infrastructure to plan the company's resources. The parent company also controls and disposes of the entire distribution process, meaning that local entities act as a means of contact with customers without assuming any responsibility. Despite the fact that the contract indicates their independence in their actions, in practice, this does not result from the contract's deployment but rather the dependence on the principal in the management of the activity carried out in Spain
In light of the ECJ judgments on the matter (among others, the recent Dong Yang Electronics judgment of 7 May 2020, case C-547/18), neither the differentiated legal personality of the local entities nor the qualification of the contract entered into by the parties as mediation in their own name prevent the existence of an FE. The autonomy or dependence of the subsidiaries, with respect to the parent entity and the economic and commercial reality of the relationship established between them, must be analyzed. One must also consider both the ECJ doctrine and the EU VAT Regulation 282/2011 concept of FE, referring to the permanence and existence of material and human resources involved in the supplies. As a result, the Spanish Tax Court concluded that the parent company has an FE in Spain and it should have therefore charged VAT on the supplies made to subsidiaries. The fact that the subsidiaries declared VAT through the application of the reverse charge mechanism has no relevance.
With this in mind, the Spanish Tax Court stated that: (i) the obligation to charge and pay Spanish VAT is independent from the fact that the subsidiaries have applied the reverse charge rule, as established by the ECJ in the Sarviz Germania case, C-111/14; and (ii) late payment interests must be assessed to the entity to which the VAT assessment is issued (parent company), not being foreseen, any compensation regarding the VAT declared by the subsidiaries that applied the reverse charge mechanism.
Spanish Tax Court has issued a judgment regarding the cancellation of a transaction in which VAT was charged.
Once properties have been purchased and VAT is paid in a certain amount, which was deducted, the sale is subsequently cancelled, without the taxpayer who supported and deducted the tax rectifying the deduction made at the time. Once the taxpayer's situation has been settled, the origin of the rectification is discussed because there is no evidence that the corresponding rectifying invoice has been received.
The Spanish Tax Court concludes that, as the transaction does not exist because it has been canceled, there is no deduction for input VAT, according to the jurisprudence of the CJEU (judgment of 27 June 2018 in the SGI and Valériane accumulated cases C-459/17 and C-460/17). Therefore, the borne and deducted VAT amounts that have become inadmissible must be rectified.
The situation differs from others in which the rectification of the VAT charged can only be known by whoever endured it through the issuance of the corresponding rectifying invoice, in the absence of which it is not possible to demand the rectification of the VAT impact. This not being the case, since the purchaser of the properties is fully aware of the cancellation of the operation and the termination of its effects, they must proceed to rectify the deduction made.
Finally, the Spanish Tax Court concludes that this obligation to rectify must be considered independent of the course of action before the entity that charged the corresponding VAT.
We remain at your disposal for any consultation or clarification regarding this alert, and we will keep you informed of any future changes regarding these issues as they become available.