In a request for a binding consultation the question raised was whether activities carried out in Spain resulted in the existence of a permanent establishment. The General Directorate considered that an enterprise cannot fragment a cohesive operating business into several small operations and argue that each of these is merely engaged in a “preparatory or auxiliary activity”. The Irish company was considered to have a PE in Spain, as it carried out a significant part of all its activity in Spain – not just simple storage/warehousing, but rather multiple logistics operations. Click here for English Translation Click here for other translation ...

“H-S Goods S.A.” was active in wholesale trade of heating and sanitary goods. The main supplier of the products was a related company from Germany, and the cusomers/recipients of the goods were both unrelated domestic companies and foreign related companies (in Latvia and Ukraine). Approximately 30 % of sales were to related parties. Sales prices for the controlled transactions, were determined based on the purchase prices from the supplier. “H-S Goods S.A.” argued that transactions with the related parties were not sale of goods, but rather provision of warehousing services on behalf of the related German supplier. For these services “H-S Goods S.A.” received a 5% margin. The tax authorities found that the activities and the fact that legal title to the goods was transferred to “H-S Goods S.A.”, meant that the transaction was in fact distribution of goods. Furthermore, the margins obtained by “H-S Goods S.A.” from sale of goods to unrelated customers was considerably higher than the 5% margins obtained from sales to related parties. A complaint was filed by “H-S Goods S.A.” with the Administrative Court which was unsuccessful. According to 2011 decision from the Administrative Court , the tax authorities had proven that the margin on goods sold to unrelated customers was considerably higher than the margin obtained from sales to related parties. The court also agreed that the activities of “H-S Goods S.A.” could not be considered warehousing services. An appeal was then filed by “H-S Goods S.A.” with the Supreme Administrative Court. Judgement of the Court The Court upheld the decision of the court of first instance. Excerpts “The Supreme Administrative Court held as follows: 7. the cassation appeal has no justified grounds. Pursuant to Article 174 of the P.p.s.a., a cassation appeal may be based on the following grounds: (1) infringement of substantive law through its misinterpretation or misapplication; (2) infringement of procedural provisions, if this infringement could have had a significant impact on the outcome of the case. The Supreme Administrative Court, in connection with Article 183 § 1 of the P.p.s.a., considers the case within the limits of the cassation appeal, taking into account ex officio only the invalidity of the proceedings. Binding of the Court to the grounds of the cassation complaint requires that they are correctly specified in the complaint itself. This means that it is necessary to cite the specific provisions of law which the court has violated, to substantiate the allegation of their violation and, if a violation of procedural law is alleged, to demonstrate additionally that this violation could have had a significant impact on the outcome of the case. As regards substantive law, it is necessary to demonstrate what the misinterpretation or misapplication by the court of first instance consisted of and what the correct interpretation or application of the substantive law provision should have been. Similarly, in the case of an infringement of procedural law, it is necessary to indicate the provisions of that law infringed by the court, what the infringement of those provisions consisted in and why that infringement could have had a significant impact on the outcome of the case. When the cassation appeal alleges both a violation of substantive law and a violation of procedural law, the last-mentioned allegation is examined first. Only after it has been determined that the state of facts adopted by the court in the appealed judgment is correct or has not been effectively challenged, may one move on to control the process of subsumption of the given state of facts under the provision of substantive law applied in the case. (cf. the judgment of the Supreme Administrative Court of 19 February 2008, II FSK 1787/06, unpublished). In the present case, the appellant only raises allegations of infringement of procedural provisions, since the content of the plea I named as the allegation of violation of substantive law in fact indicates only circumstances of procedural nature, such as: “erroneous assumption by the Court of First Instance that the most appropriate method of estimating income in transactions with related parties is the transaction margin method”. Meanwhile, a possible incorrect legal assessment of the factual state does not constitute a violation of substantive law and, as such, cannot constitute a cassation ground within the meaning of Article 174(1) of the A.P.S.A. An assessment of the legitimacy of the application of substantive law, i.e. Article 11(3) of the A.P.D.O.P. in conjunction with § 4(4), § 11(1) and (2) and § 12(1) and (2) of the Ordinance may only be made on the basis of correctly established facts. Incorrect application of the law consists of the so-called error in subsumption, which is expressed in the fact that the facts established in the case were erroneously deemed to correspond to the hypothetical state provided for by the legal norm, or that the established facts were erroneously not “drawn” under the hypothesis of a specific legal norm. Thus, the application of the substantive law is the correct reference of the substantive law norm to the established state of facts, i.e. the correct confrontation of the circumstances of the state of facts with the hypothesis of the legal norm and the submission of this state of facts to a legal assessment on the basis of the content of this norm. Hence, the defects raised by the author of the cassation complaint may be challenged only under the second ground of the cassation complaint – Article 174(2) of the Code of Civil Procedure.” “Allegation II, point 1 is not justified. Contrary to the arguments of the appellant, the court of first instance, following the guidelines contained in the judgment of the Supreme Administrative Court of 1 March 2011, correctly determined the nature of the transaction between the taxpayer and related entities. In particular, it referred to the amount of the established 5% margin, indicating at the same time that the margin imposed on goods intended for sale on the Polish market was on average 6 times higher than the established compensatory margin.” Click here for ...

“H-S Goods S.A.” was active in wholesale trade of heating and sanitary goods. The main supplier of the products was a related company from Germany, and the cusomers/recipients of the goods were both unrelated domestic companies and foreign related companies (in Latvia and Ukraine). Approximately 30 % of sales were to related parties. Sales prices for the controlled transactions, were determined based on the purchase prices from the supplier. “H-S Goods S.A.” argued that transactions with the related parties were not sale of goods, but rather provision of warehousing services on behalf of the related German supplier. For these services “H-S Goods S.A.” received a 5% margin. The tax authorities found that the activities and the fact that legal title to the goods was transferred to “H-S Goods S.A.”, meant that the transaction was in fact distribution of goods. Furthermore, the margins obtained by “H-S Goods S.A.” from sale of goods to unrelated customers was considerably higher than the 5% margins obtained from sales to related parties. A complaint was filed by “H-S Goods S.A.” with the Administrative Court. Judgement of the Court The Court dismissed the complaint. According to the court, the tax authorities had proved that the margin on goods sold to unrelated customers was considerably higher than the margin obtained from sales to related parties. The court also agreed that the activities of “H-S Goods S.A.” could not be considered warehousing services. Click here for English translation Click here for other translation ...