‘Fixed establishment’ in the meaning of VAT regulations can be easily mistaken with the definition of ‘permanent establishment’ for corporate income tax (CIT) purposes. However, even if at a first glance their definitions may seem similar, in practice these are two different concepts with different definitions. Thus it is always recommendable to conduct two critically important tests before the foreign entity starts doing business in Poland. First, whether a foreign company, due to its activities in Poland, will be regarded as having a ‘permanent establishment’ in Poland, and secondly whether it will have a ‘fixed establishment’ in Poland.

The risk of a foreign entity to be regarded as having ‘fixed establishment’ in Poland due to some scope of activities in the territory of Poland has got significantly higher recently. The latest developments in Poland in this area, reflected in latest tax rulings and administrative courts judgments, show that a foreign entity should be very careful before commencing any activities in Poland. In particular the question if a foreign company has a ‘fixed establishment’ in Poland or not affects the determination of place of supply of services and is often crucial to decide if the foreign entity should register for VAT purposes in Poland or not.

According to the EU Regulation 282/2011, a ‘fixed establishment’ is characterized by a sufficient degree of permanence and a suitable structure, in terms of human and technical resources, to enable it to receive and use the services supplied to it for its own needs. The broad way of understanding of ‘fixed establishment’ is already a developing trend in Polish tax authorities position and in court judgements. This development took place after the judgment in Welmory case C-605/12 which was issued by European Court of Justice on October 16, 2014. In Welmory case the court held that the third-party resources (like e.g. the local subcontractors infrastructure) is sufficient to say that the ‘fixed establishment’ of a foreign entity was created. The reasoning from Welmory case is now used by Polish tax authorities and administrative courts to consider that a foreign entity created a ‘fixed establishment’ even if this entity does not have its own warehouse, real estate or employees, but it concluded a contract with a Polish subcontractor who is performing for this foreign entity e.g. manufacturing, assembling, warehousing services. Therefore the foreign entity may be regarded as having a ‘fixed establishment’ in Poland even if its own presence in the territory of Poland, in terms of its own resources, is very limited.

The latest development in this area are two questions raised by Regional Administrative Court in Wroclaw and transferred to the European Court of Justice on June 6, 2018 (case I SA/Wr 286/18). The Polish court asked the European Court of Justice two questions about the understanding of ‘fixed establishment’ concept. One of the question was, if it is possible to derive the existence of a ‘fixed establishment’ in Poland from the very fact that a company established outside the EU has a subsidiary in Poland. Secondly: if the answer to first question is negative, is the third party obliged to analyse the contractual relationship between the company with its registered office outside the EU and the subsidiary in order to determine whether there is a ‘fixed establishment’ in Poland by the first company.


The risk of having a ‘fixed establishment’ for VAT in Poland gets higher