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CJEU Case C-547/18 Dong Yang Electronics

In this issue:

ECJ Decision in the case C-547/18 Dong Yang Electronics

Place of supply of services


CJEU Case C-547/18 Dong Yang Electronics

The case analyzes whether a subsidiary can be regarded as a fixed establishment of a parent company, where the place of supply of services provided to that company is located and which State is entitled to impose tax.


Facts of the case and Court Decision

Dong Yang Electronics, established in Poland, concluded, with LG Display, established in the Republic of Korea, a contract to provide services involving materials owned by LG Korea. These materials were provided to Dong Yang by a subsidiary of LG Korea in Poland.

LG Korea, which was registered for VAT purposes in Poland and had a tax representative, assured Dong Yang that it did not have a VAT fixed establishment in Poland. Dong Yang therefore issued invoices to LG Korea which did not include VAT.

The Polish tax authorities imposed additional VAT for Dong Yang for the services in question, since Dong Yang’s services had not actually been supplied to the Korean seat of LG Korea, but to the place of its fixed establishment in Poland. The authorities found that LG Korea had itself created a fixed establishment in Poland by ‘exploiting the economic potential’ of its subsidiary and that Dong Yang should have examined the use of its services.


In those circumstances, the national court decided to ask the CJEU the following questions:

  1. Can it be inferred, from the mere fact that a company established outside the European Union has a subsidiary in the territory of Poland, that a fixed establishment exists in Poland within the meaning of Article 44 of the VAT Directive and Article 11(1) of the Implementing Regulation?
  2. If the first question is answered in the negative, is a third party required to examine contractual relationships between a company established outside the European Union and its subsidiary in order to determine whether the former company has a fixed establishment in Poland?

ECJ decided that Article 44 of the VAT Directive and Article 11(1) of the Implementing Regulation must be interpreted as meaning that the existence, in the territory of a Member State, of a permanent establishment of a company established in a third State cannot be inferred by a service provider simply because that company has a subsidiary there and that this service provider is not required to inquire, for the purposes of such an assessment, the contractual relations between the two entities.

However, as it is reminded in this case, taking into consideration the economic and commercial reality is a fundamental criterion in the application of the common system of VAT, and this criterion must be considered when qualifying a subsidiary as a fixed establishment.


Impact of the decision

This decision should be considered by companies having business relations with subsidiaries of companies established in other States.

Prepared by:
Bogdan Papavă – Manager, Indirect Tax
For additional information, please contact:
Alex Milcev – Partner, Tax & Law Leader Romania
Ernst & Young SRL
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22nd Floor, 15-17 Ion Mihalache Blvd.,
Sector 1, 011171, Bucharest, Romania
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