C-260/95

3. The parent company and its subsidiary concluded an agency agreement to govern relations between them. 3 In that document the English company was appointed general sales and port agent for the Danish company (or, more precisely, for the passenger division of that company, Scandinavian Seaways) and it was entrusted with making reservations — throughout the United Kingdom and Ireland DFDS A/S (hereinafter also referred to as — for the passenger services operated by the 'the Danish company') operates, inter alia, as Danish company (Clause 1). a tour operator. It is incorporated under Danish law and has its registered office in Copenhagen. 2 — Until 1989, DFDS Ltd sold tours directly in the United Kingdom and it was taxable, for VAT purposes, on the mar- gin it made on the tours. It was only in 1989 that the tours were offered by DFDS A/S in its own name and DFDS Ltd * Original language: Italian. ceased to be subject to value added tax in respect of the orga- 1 — Sixth Council Directive (77/388/EEC) of 17 May 1977 on nization of package tours in the United Kingdom. the harmonization of the laws of the Member States relating 3 — A first agreement was concluded on 1 January 1989. It was to turnover taxes — Common system of value added tax: replaced by a new one in essentially identical terms on uniform basis of assessment (OJ 1977 L 145, p. 1). 1 December 1991.

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As far as the strictly financial aspect is con- cerned, however, the discretion enjoyed by the English company in matters of pricing is extremely limited. It must observe the frame- work laid down by the Danish company in consultation with the English company. And at the end of each month, the receipts of the English company are transferred, after deduction of the agreed margin of 19%, to the Danish company's account.

In return for such activities (Clause 4.1.1.) the parent company pays a gross commission The English company thus carries on of 19% on all fares sold by the English com- directly the business of marketing and adver- pany. tising, but coordinates its activities with the

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commercial division of the Danish company. paid to the English company for acting as an The latter, it will be remembered, reimburses intermediary for the parent company. 4 the advertising expenses incurred.

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8. The High Court, before which an appeal In the course of the procedure, written was bought by the United Kingdom tax observations were lodged by DFDS A/S, the authorities, has referred the following ques- Italian Government, the United Kingdom tion to the Court of Justice for a preliminary Government and the Commission. Repre- ruling: sentatives of DFDS A/S, the Governments of the United Kingdom and the Federal Repub- lic of Germany and the Commission took part in the hearing.

Legislative background O n the proper interpretation of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Mem- ber States relating to turnover taxes (the Sixth VAT Directive), and in particular Article 26 thereof, where a tour operator has 9. Having thus set out the facts, let us now its headquarters in Member State A but sup- consider what legislation is applicable to this plies services in the form of package tours to case. The relevant provisions are the follow- travellers through the agency of a company ing articles of the Sixth Council Directive of in Member State B: 17 May 1977:

Article 9(1) lays down general rules to deter- mine the place at which a service subject to (a) in what (if any) circumstances is the sup- VAT is supplied: ply of those services by the tour opera- tor taxable in Member State B?

'The place where a service is supplied shall be deemed to be the place where the supplier (b) in what (if any) circumstances can it be has established his business or has a fixed said that the tour operator “has estab- establishment from which the service is sup- lished [its] business" in Member State B plied or, in the absence of such a place of or "has a fixed establishment from which business or fixed establishment, the place [it] has provided the services" in Mem- where he has his permanent address or usu- ber State B?' ally resides.'

2. All transactions performed by the travel Legal assessment agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has 10. As stated in the seventh recital in the provided the services. The taxable preamble to the Sixth Directive, 'the deter- amount and the price exclusive of tax, mination of the place where taxable transac- within the meaning of Article 22(3)(b), tions are effected has been the subject of in respect of this service shall be the conflicts concerning jurisdiction as between travel agent's margin, that is to say, the Member States in particular as regards ... the difference between the total amount to supply of services'. The legislation at issue be paid by the traveller, exclusive of also provides not only for harmonization of value added tax, and the actual cost to the rules laid down by the Member States in the travel agent of supplies and services this area but also for determination of the provided by other taxable persons criteria for resolving any conflicts between where these transactions are for the the various jurisdictions involved.

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6 — Case C-163/91 Van Ginkel [1992] ECR I-5723, paragraph 7 — Van Ginkel, cited in the preceding footnote, paragraph 14. 13. 8 — Order for reference (5.5.2).

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fixed establishment, and the relationship on to make it clear that an order of prece- between those two terms. 9 dence must be observed. Specifically, it is only if 'the reference to the place where the supplier has his business does not lead to a rational result for tax purposes or creates a conflict with another Member State' that account must be taken of another establish- 15. Defining the concept of the place where ment from which the services are supplied. 12 the undertaking has established its business In short, the place where the supplier has does not, in Advocate General Mancini's established his business must be seen as the view, raise 'problems'. It is clear that the 'primary point of reference'. 13 term 'should be understood in its technical sense [that is to say, as referring to] ... the registered office, as indicated by the statutes of the company owning the supplier under- taking'. 10 And in the present case there is no doubt — a fact accepted by all the parties in the proceedings — that DFDS A/S is a com- pany incorporated in accordance with Dan- 18. Having thus clarified the concepts appli- ish law and has its registered office in Den- cable, let us examine the substance of this mark. case. In answering the questions submitted by the national court, we must ask ourselves at the outset whether the English company cart be regarded, by virtue of the nature of its relationship with its parent company, as a 'fixed establishment' of the Danish company, 16. More problematical, however, in so far from which the services are supplied. Sec- as an economic term is involved, is the task ondly, it is necessary to identify, in the light of determining the meaning of 'fixed estab- of the facts, which of the two criteria lishment from which the service is supplied'. described above should be applied to the In its judgment in Berkholz, the Court held present case. that a precondition for the existence of a fixed establishment is the 'permanent pres- ence of both the human and technical resources necessary for the provision of those services'. 11

concept of agency. I refer more precisely to purpose of which was to remove certain the decisions in which the scope of Article commercial relations entered into by a tour 85(1) of the Treaty has been defined in rela- operator with a travel agency from the scope tion to commercial agents. 14 of Article 85(1), the Court held that 'a travel agent of the kind referred to by the national court must be regarded as an independent agent who provides services on an entirely independent basis. He sells travel organized by a large number of different tour operators and a tour operator sells travel through a very Urge number of agents. ... a travel agent 20. The problem, of course, was — and is — cannot be treated as an auxiliary organ form- that of deciding in what circumstances a ing an integral part of a tour operator's commercial agent must be regarded as an undertaking' 17 (emphasis added). entity distinct from its principal. The conclu- sion reached on that point then serves as basis for deciding whether or not the rela- tions between the principal and the agent can be appraised by reference to Article 85(1). That provision can in fact only be applied where the agent is independent. As Advocate General Tesauro has said, '[w]here the repre- sentative forms part of the principal's under- taking, this would seem to entail the agent's "disappearance" as an independent economic operator'. 15

operators. Rather, its contractual link with is different from that of the German conces- its parent means that its agency business can sionaires in the Volkswagen case. It does not be carried on only in relation to the parent, seem in fact to bear any financial risk under unless the latter has expressly consented oth- the contracts it concludes with consumers in erwise. Besides, as the agency agreement the course of its agency work on behalf of defines the relations between the parent the Danish company. company and the subsidiary, the latter has no effective independence from the former in the conduct of its business. The same conclu- sion follows from a number of points made earlier: in particular, the need for prior approval from the parent company regarding management of the subsidiary company, such as the appointment of senior staff (Clause 3.2), the conclusion of major con- 24. The English company is therefore an tracts, the appointment of advertising and auxiliary organ forming part of the Danish public relations agents (Clause 3.3), and the company from the economic point of view. lack of any discretion in setting the prices of It remains to be seen whether DFDS Ltd can services. All in all, it seems to me that, hav- be regarded as a 'fixed establishment' of the ing regard to its legal form, the English com- parent company. pany acts as an auxiliary to the parent com- pany.

lishment in another Member State for an taken by the VAT Tribunal. The decision indefinite period'. 20 adopted by that tribunal highlights a number of factors, the most important of which — and here I share the view expressed by the Commission's representative at the hearing — is the fact that the English company has about 100 employees. And there is no short- age of other considerations of a factual nature to support the view that, in addition, Even clearer, for the purposes of this case, is the service offered to consumers originates in the second judgment cited above. There it is the United Kingdom. The contract is con- stated that 'an (insurance) undertaking of cluded in the United Kingdom; it may be another Member State which maintains a presumed that payment is made in local cur- permanent presence in the Member State in rency; any complaints from customers will question comes within the scope of the pro- be dealt with by the English company; and visions of the Treaty on the right of estab- the parent company reimburses any expenses lishment, even if that presence does not take incurred by DFDS Ltd in legal proceedings the form of a branch or agency, but consists to protect its interests. merely of an office managed by the under- taking's own staff or by a person who is inde- pendent but authorized to act on a perma- nent basis for the undertaking, as would be the case with an agency'. 21

27. O n the basis of the matters which I have described, DFDS Ltd fulfils the conditions for classification as an establishment, as defined in Berkholz. There is 'permanent 26. Let us now consider whether the presence of both the human and technical requirements laid down by the Court in resources necessary for the provision of those decisions are met in this case. In my those services'. There is everything necessary opinion they are. There is actual pursuit of for a fixed 'establishment'. an economic activity, it is pursued for an indefinite period and there is a fixed estab- lishment. All those points are confirmed by the detailed examination of the facts under-

the place where the undertaking has estab- empowered to impose it, since the intention lished its business, 22 it being incorporated in is to avoid any conflict with the tax-levying the Netherlands, rather than the other place authorities of other Community States. 24 — Belgium — where the undertaking carries on a car-leasing business. In making that proposal, the Advocate General relies on various factors, including the fact that the Netherlands company had no place of busi- ness in Belgium, whilst the car-leasing con- tracts were concluded in the Netherlands and represented the major part of the ser- vices offered by it, which were entrusted to a large body of persons and resources. 23 What 29. It will be for the competent authority in consequence can be drawn from the conclu- each State to determine to what extent one of sions reached by the Advocate General in the two criteria should be applied rather than that case which may be relevant to the the other. The Court, for its part, is called on examination to be undertaken by the Court to explain and oversee fulfilment of the here? It must be, I think, that we should rec- requirements on which the choice of one cri- ognize that in this case there is a fixed estab- terion rather than the other should be based. lishment in the United Kingdom, as defined Thus, in the present case, attention must be by Community legislation. focused on the consequences that would flow from the general criterion of the place where the supplier has established his busi- ness. If the result is rational, as intended by the directive, that is the rule to be preferred. There is no need for the other, which con- cerns the place of the fixed establishment.

Community tax legislation. 25 They include of the opinion that reference to the place the requirement that VAT be levied at the where the supplier has established his busi- place where the service is provided. That ness does not in this case lead to a rational said, and having regard also to the relation- result. The first consequence of such an ship between the English company and its approach would in fact be failure to apply parent, the United Kingdom Government the legislative criterion that the place of taxa- infers that DFDS Ltd is a secondary estab- tion must fundamentally coincide with that lishment of DFDS A/S. The latter is there- at which the service is supplied to the con- fore, in its view, taxable in the United King- sumer. That is the basic criterion: the VAT dom in respect of the services provided from system must be applied in a manner as far as Harwich. possible in harmony with the actual econ- omic situation. I do not consider it logical for the subsidiary criterion, when the possi- bility of applying it is assessed, to be auto- matically treated as being subordinate to that of the place where the supplier has estab- lished his business.

25 — United Kingdom observations, paragraph 24. The reference is to point 2 of the Opinion or Advocate General Mancini who, having raised the question of which of the two main criteria in Article 9 was to prevail where the place where the supplier has established his business and the fixed estab- lishment did not coincide, gave the following answer: 'The provision is silent in that regard; nor does the preamble to the directive provide any assistance.... I therefore propose to rely on the general principle that value added tax should be charged at the place of consumption and hence give pref- Article 28(3)(g) gives Member States the erence to the criterion which enables the supply of services power to grant exemptions and it is not dif- to be located more accurately. There is no doubt that the more appropriate of the two for that purpose is the crite- ficult to imagine that undertakings might rion of the "fixed establishment", which is clearly more precise' (emphasis added). choose to establish their registered office in 26 — Paragraph 21 of DFDS's observations. the territory of a Member State which has

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34. It is therefore necessary to consider the wording and purposes of Article 26(2). The reader cannot fail to notice the significance of the fact that the second sentence of Article 26(2) expressly lays down two criteria rather than just one. That is because the legislature envisaged not only the case of the registered 27 — Also, I agree with the Commission's view that the interpre- office but also the case where the activity car- tation o f Article 26(2) given by DFDS A/S is illogical. I consider that the proper objective of the provision, that of ried on by tourist agencies extends over a reducing to a single service for tax purposes the various ser- vices involved in the business of the tour operator, does not wide area and services are provided from thus extend, as contended by the Danish company at the hearing, to the place of the supply of the service, in the various places within the territory of the sense that there should also be only one place of supply. Community. And it is to cover the second The two aspects of the rules — determination of the services liable to VAT and of the place where they are so liable case that the scheme of the directive treats as — are in fact logically separate and must in my opinion remain so. To recognize, thus, that the place of the service is the place of taxation the place where the ser- the location of the fixed establishment from which it is sup- vice is actually provided and not the other plied would not in my view lead to any fragmentation or dispersion of fiscal competence, as feared by DFDS A/S at place, where the undertaking has its fixed the hearing. Rather, such a solution would simply result in subjecting tour operators' services (seen as a whole) to VAT establishment. The criterion of the establish- at the place where they are actually provided to the con- ment from which the service 'emanates' is sumer.

That is not all. This case cannot be decided in the way advocated by the Danish com- pany without disregarding the method of interpretation which, in my view, should be used in analysing this case. I draw support in making that choice from the view expressed in Advocate General Darmon's Opinion in the Daily Mail case. In that case it was neces- sary to assess the conditions under which the location of the central management of an undertaking could be identified. He con- cluded: 'That designation [of the place where the central management is located] cannot be arrived at by means of a formal legal assess- 37. The fact that the legislature chose not to ment which does not take account of a num- amend Article 9 in those terms can be ber of factual elements the respective scope explained, in my opinion, precisely by the of which may vary according to the type of intention to emphasize the importance of the company involved' (emphasis added). 29 concept of the 'fixed establishment'. That concept is an eminently economic concept, as the Italian Government points out in its observations. It refers solely to an establish- ment from which services may be provided — by virtue of the sufficiency of the human and technical resources assigned to it — and are actually provided.

36. Moreover, an indirect but significant confirmation of the correctness of that con- 30 — Proposal for a Nineteenth Council Directive on the harmo- nization of the laws of the Member States relating to turn- over taxes, amending Directive 77/388/EEC, presented by the Commission to the Council on 5 December 1984 (OJ 1984 C 347, p. 5; Article 1(b) —emphasis added). The 29 — Point 7 of the Opinion cited (and see also the reasoning in legislative history of this proposed amendment is given point 8). in P. Farmer and R. Lyal, op. cit., p. 158.