A subsidiary can (also) be a fixed establishment (FE) of its parent company under European (EU) VAT, after all. This is the most immediate conclusion as it emerges from the much-awaited decision by the Court of Justice of the European Union (CJEU) in Dong Yang Electronics (Case C-547/18).
With its ruling on 7 May 2020, the CJEU quite unexpectedly revamped its nearly buried case-law in DFDS (Case C-260/95), where the Court had found that a subsidiary can indeed constitute a FE of the parent company in so far as the former acts as a “mere auxiliary organ” of the latter.
Thus, the EU judiciary (with all due respect to her) “threw a punch” at Advocate General (AG) Kokott, who, in her conclusions released on 14 November 2019 and that the author had the chance to briefly comment on this blog, has raised a series of “fundamental reservations” (paras 37-46), plus further considerations (paras 47-67), against the possibility to recharacterize, by means of an ex-post assessment, a legally separate entity like a subsidiary as a FE “in disguise” of its parent company. It is particularly remarkable that the principle of legal certainty, which AG Kokott had mentioned at every turn in her opinion, has never been recalled by the CJEU in its decision, whose findings instead pay consideration to “economic and commercial realities” as a “fundamental criterion for the application of the common system of VAT” (para. 31).
Beside the one mentioned above, various other interesting findings as well as some (re)open(ed) questions might be traced in the folds of the decision at comment. But let’s proceed in due order and briefly expose the facts and questions of the case.
The factual background of the request for a preliminary ruling is that a South Korean company (LG Display Korea) concluded a contract with a third-party Polish company (Dong Yang Electronics) for the supply of services consisting in the assembly of printed circuit boards (PCB) from materials and components owned by LG Display Korea, which were imported from outside the EU and provided to the supplier of PCB assembly services by a Polish (not clear if fully owned) subsidiary of the South Korean parent company (LG Display Poland). The PCB as assembled by Dong Yang Electronics were then supplied back to LG Display Poland, which, after processing them further on the basis of another contract with the parent company LG Display Korea, yielded the products (not entirely clear if the property thereof was also relinquished by LG Display Korea) to another company part of the LG Display group, i.e. LG Display Germany, which proceeded to marketize them across the EU.
Dong Yang Electronics invoiced the PCB assembly services to LG Display Korea, treating those services as a B2B transaction not subject to EU VAT pursuant to the destination principle as followed in Article 44 of the VAT Directive (VD), being the place of supply in the case at hand outside the jurisdictional reach of EU VAT (i.e. in South Korea, where the business customer LG Display Korea was established).