Țuca Zbârcea & Asociații has obtained the first final ruling of the High Court of Cassation and Justice annulling tax liabilities arising from the creation of fixed establishment in the area of VAT. The sum annulled by the court is EUR 13.5 million. The issue is of great interest to non-resident economic operators and in particular those operating in the Romanian electricity and gas market.

Multidisciplinary teams of lawyers and tax advisors from Țuca Zbârcea & Asociații and Țuca Zbârcea & Asociații Tax respectively successfully assisted and represented an international company in a tax dispute concerning the annulment of Decisions issued by the Romanian tax authorities for VAT payment obligations in amount of EUR 13.5 million as part of the fixed establishment concept. 

The team of lawyers and tax advisors acting on this complex case was made up of Ioana Hrisafi (Partner, Litigation), Cristian Velcu (Partner, Țuca Zbârcea & Asociații Tax) and Mihail Petcu (Senior Associate, Litigation). 

This final judgment from the High Court of Cassation and Justice is a turning point in the interpretation of national and European legal provisions on the concept of fixed establishment and its application to the specific economic operations of each non-resident company.

The team won the case on the basis of various strong procedural and substantive arguments. As such, the concept of a fixed establishment is applicable only in the area of VAT, which operates autonomously and independently from the concept of a permanent establishment. Also, the existence of a fixed establishment for tax purposes cannot be inferred or presumed from the mere fulfilment of regulatory obligations specific to the sector in which companies operate. Further, the mere existence of a branch in Romania is not equivalent to the existence of a fixed establishment, but an in-depth analysis of the activities carried out and the resources involved is required. Last but not least, the existence of human and technical resources, which are part of the conditions for setting up a fixed establishment for VAT purposes, must be actually proven (not merely presumed) by tax authorities.

The concept of fixed establishment is still in the focus of tax authorities as it has a particular impact in the area of VAT. Following the court rulings, tax authorities should be more rigorous in their approach to each tax inspection where they investigate the matter of fixed establishment from a VAT perspective, taking into consideration the entirety of the documentation and arguments provided by the companies inspected.