Call-of-stock warehouse vs. Fixed Establishment (FE)

In January this year, the European Commission (the EC) issued letters to 12 EU Member States because of a delay in implementing the EU Directive 2018/1910 regarding the „Quick Fixes” (QF) package for VAT purposes.

QF should be effective throughout the EU from January 1, 2020, however, have not been implemented into legislation in countries such as Poland, Belgium, France, Italy, Luxembourg, Portugal, Spain, the United Kingdom.

However, in some cases, EU Member States have issued the necessary laws or regulations, but only in the form of a draft act. In Poland, the Ministry of Finance issued a communication on the rules of proceeding during the transition period as part of the non-implemented QF package.

One of the changes which are awaiting implementation in Poland is the regulations related to the functioning of call-off stocks (Call-of-stock). Movement of goods under the Call-off stock procedure is not considered as an intra-Community acquisition of goods (ICA). The simplification is dedicated to the value-added taxpayers sending their goods to another EU Member States and allows them to de-register for VAT purposes in the recipient’s country or in the event of starting a business, avoiding VAT registration. It allows the use preferences, for example as to the moment of proving the tax obligation in the intra-Community supply of goods (ICS), and for the purchaser in ICA.

The solution, in practice, turns out to be quite difficult. Breaking at least one of the statutory conditions is connected with a loss of describe simplification. One of the conditions for using Call-of-stock is that the supplier, as a taxable person, has neither its registered office nor permanent establishment (FE) in the EU country to which the goods are transferred. 

Here comes the problem. In Poland, the FE issue is a very controversial theme. Although the Court of Justice of the EU (CJEU) has already decided in many cases regarding the concept of the FE, for example, case no. 168/84 Berkholz; C-260/95 DFDS; C-190/95 ARO Lease; C-390/96 Lease Plan; C-605/12 Welmory, doubts have not been dispelled. The approach of the Polish tax authorities is extremely restrictive and unfavorable for foreign entrepreneurs. The tax authorities eagerly point to the existence of the FE, extending the scope of this institution to further structures for business operations in Poland without much analysis and the legal basis. Using logistics centers, warehouses, services on entrusted assets, owning subsidiaries companies by foreign entities become risky.

In this situation, the question arises, how to interpret FE in the context of Call-off stock?

The EC gives the taxpayers some hints. The theme has been recently discussed at the EC level and explanatory notes regarding QF have been published. In the explanations, we can read, among others, that the VAT Committee:

• unanimously agreed that when the warehouse to which the goods are transported under Call-off stock arrangements procedure is owned and run by a person or persons other than the supplier, this warehouse shall not be seen as a FE of the supplier;

• at large majority, agreed that when the warehouse, to which goods are transported from another EU Member State with a view to those goods being supplied at a later stage to an identified customer, is owned (or rented) and directly run by the supplier with his own means present in the EU Member State where the warehouse is located, this warehouse shall be seen as his FE;

• however, where such warehouse is not run by the supplier with his own means or where those means are not actually present in the EU Member State in which the warehouse is located, the VAT Committee, at large majority, agreed that despite the fact that the warehouse is owned (or rented) by the supplier, it may not be considered his FE.

It is worth noting that the explanatory notes are not legally binding, they are not exhaustive but may help to facilitate the interpretation of the provisions.

Determining whether a company has an FE in Poland is important to ascertain the place of services supply, the obligation to pay VAT, and the right to deduct it. It is worth that entities using or wishing to use the review of the above mentioned structures how the applied or planned business model affects the FE.