A Swiss company, Ashland Industries Europe GmbH, had not declared a presence in Spain for VAT purposes and did not charge VAT for local sales.
However, the Swiss company used the resources of its Spanish subsidiary when performing these local sales of goods in Spain.
On that basis, the Spanish tax authorities found that the company had a permanent establishment for in Spain for VAT purposes and issued an assessment.
An appeal was filed by Ashland Industries, but the appeal was dismissed by the courts.
The Spanish Supreme Court concluded that:
“First. To determine whether a permanent establishment can be deemed to exist in the Spanish territory of application of VAT where the only transactions carried out subject to that tax are supplies of goods other than supplies of gas, electricity, heat or refrigeration.
Second. If the answer to the previous question is in the affirmative, what conditions are necessary to establish that a Spanish subsidiary constitutes a permanent establishment in the Spanish territory of application of value added tax?
The answer to the first question, in accordance with our reasoning, must be that, on an interpretation of Articles 69(3) and 82(2) of Law 37/1992, Articles 44 and 45 of Directive 2006/112 and Article 11(1) of the implementing regulation (EU) of 15 March 2011, a permanent establishment may be deemed to exist in the Spanish territory in which VAT is applicable where the only transactions carried out subject to that tax are supplies of goods other than gas, electricity, heat or refrigeration.
The answer to the second question, in accordance with our reasoning, must be that the conditions necessary for holding that a Spanish subsidiary constitutes a permanent establishment in the Spanish territory where value added tax is applied are those which derive from the case-law of the Court of Justice of the European Communities and which have been set out in the case-law of that Chamber, judgment of 23 March 2018 (RCA 68/2017).
It follows from the case-law that, in order to be able to speak of a permanent establishment for VAT purposes, the following conditions must be met:
(a) The existence of a fixed place of business which determines the link with the territory of application of the tax A physical link with the place of business is therefore required and it must have a sufficient degree of permanence (judgments of 4 July 1985, Berkholz, 168/84, EU:C:1985:299, paragraphs 18 and 19; and of 28 June 2007, Planzer Luxembourg, C-73/06, EU:C:2007:397 , paragraph 54).
(b) An adequate structure in terms of human and technical resources (Berkholz, paragraphs 18 and 19, and Planzer Luxembourg, paragraph 54; also, judgment of 16 October 2014, Welmory, C-605/12 , EU:C:2014:2298, paragraph 58). Therefore, Articles 84(2) LIVA and 31(2) LFIVA, by requiring the permanent establishment to intervene in the supply of goods or services, consider that such an intervention takes place when the establishment arranges its material and human factors of production or one of them for the purpose of carrying out the transaction subject to VAT. It is not essential to have their own structures, and agencies or representatives authorised to contract in the name or on behalf of the taxable person may be considered permanent establishments [ see Article 69(3)(2)(a) Vat].
It must also have a sufficient degree of permanence and a structure suitable, from the point of view of its human and technical resources, to enable it to carry out autonomously the transactions in question (Case C-190/95 AROLease  ECR I-0000). I-4383, paragraph 16, and Case C-390/96 Lease Plan  ECR I-2553, paragraph 24).
(c) With a few exceptions, it does not have to be a subsidiary, since it has legal personality. In such situations, it is the subsidiary which becomes liable for VAT, and not the parent company, which, in order to be regarded as such, must not act through subsidiaries but through permanent establishments in the territory where the tax is applied (see Article 87(2) LFIVA and Article 31(2) LFIVA). However, by way of exception, a subsidiary may be regarded as a permanent establishment where it is wholly controlled by the parent company on which it is wholly dependent and where it operates as a mere subsidiary. In such situations, the underlying economic reality must prevail over legal independence (judgments of 20 February 1997, DFDS, C-260/95, EU:C:1997:77 , paragraph 29; and 25 October 2012, Daimler Widex, C-318/11 and C-319/11, EU:C:2012:666, paragraphs 48 and 49).”