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Romania: Fixed establishments at a glance

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Georgiana Iancu of EY Romania explores the concept of fixed establishments within the Romanian tax framework and looks at how it operates alongside VAT legislation and tax audits.

During recent tax audits, the business activities of non-residents in the national territory and the potential of creating VAT fixed establishments (FE) have been subject to increased focus of the Romanian authorities.

Briefly, the threshold set by the tax audits was rather low. In the tax inspectors’ interpretation, a VAT FE can be easily created, most often in cases when the non-resident relies on the support of another local affiliated company, or even in the case where the set-up of local presence (like a branch) is needed due to regulatory constraints.

Fixed establishment under Romanian VAT legislation

From a theoretical standpoint, looking at how the fixed establishment was implemented in the Romanian VAT law, one could conclude that the threshold to create a FE is rather high since the FE is defined by reference to the capacity of performing taxable supplies of goods and/or services.


A non-resident is deemed to have a fixed establishment “if it has available in Romania enough technical and human resources to perform continuously taxable supplies of goods and/or services”. A non-resident is not deemed as established in Romania for the supplies of goods and/or services in which the Romanian FE does not intervene.

Concerning the FE involved in receiving services (so-called passive FE) and the FE involved in supplying services, the Romanian secondary VAT legislation adapted the wording of Article 11 of the EU VAT Regulation No 282/2011 by merging it with the existing concept of active FE (involved in supply of goods and/or services). Under a literal interpretation of the Romanian VAT provisions, one would conclude that a passive establishment could not be deemed to exist on a stand-alone basis, namely not without the simultaneous creation of an active FE. Such establishment:

  • On the one side, should have available in Romania enough technical and human resources to perform continuously taxable supplies of goods and/or services: and

  • On the other side, should be characterised 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.

While in theory, upon a literal interpretation of the said Romanian VAT rules, the threshold beyond which a passive FE is created seems rather high, the recent practice of tax audits displayed a low threshold, with many FE assessments and a strict inquiry of various commercial and operational aspects embedded in the business set-up.

The landscape of fixed establishments connected to Romanian tax audits

Looking at the VAT topics under the scrutiny of the Romanian tax authorities, one can hardly ignore the fixed establishment, the growing importance of which resulted recently in significant tax bills, covering a broad area of business schemes and sectors. The players which faced the hit of VAT FE assessments during Romanian tax audits are acting in various sectors, ranging from pharmaceuticals, automotive, industrial products, consumer products, and even energy:

  • Pharmaceutical marketing entities supporting their affiliated non-resident principal selling goods on the Romanian territory;

  • Toll manufacturing or processing schemes where a local processing entity acts upon the instructions of its affiliated non-resident principal; or

  • Energy and gas licenses obtained by non-resident principal traders on condition that a Romanian branch is incorporated.

The above are real-life examples that reflect the vast playground where Romanian tax authorities have already assessed that non-residents are deemed to create a VAT fixed establishment in Romania.


Considering the Romanian landscape, the FE topic casts a wider potential for tax controversy, if one thinks of pending referral in the Austrian case C-931/19 concerning the letting of real estate, or pending referral in the Romanian case C-333/20 concerning the reliance by a pharma supplier on its affiliated company rendering marketing, advertising, and regulatory services, with a view of promoting the supplier’s products and increasing demand.


The much-awaited decisions in the two preliminary referrals will hopefully provide clarity on existing aspects associated with fixed establishments, and ideally, bring more consistency and harmonisation across EU member states. Looking at the pending questions, the awaited answers will hopefully clarify:

  • To what extent the essential condition of having enough technical and human resources should be interpreted that the two criteria must be always satisfied to the same extent. Particularly, in the case of activities involving only a passive tolerance of an act or situation, as it is the case of letting of properties, is the presence of human resources at the establishment required?

  • To what extent the reliance on an affiliated company rendering support services for marketing products and increasing demand, can result in the latter acting as a FE for the non-resident. Particularly, to what extent control over an affiliate company, due to a majority holding of the shares, could be interpreted as having immediate and permanent access to such human and technical resources to create a FE.

Awaited and recommended action points

Even after the latest decisions of the Court of Justice of the European Union (CJEU) in the Polish cases C‑605/12 (Welmory) and in the case C‑547/18 (Dong Yang Electronics), there are plenty of elements left unsolved around the fixed establishment topic.

At a moment at which fixed establishments represent a top priority on the tax audit agenda, the need for more clarity, either from the CJEU judgments or from additional EU guidelines or explanatory notes, whichever comes first, is highly needed to achieve neutrality and legal certainty.

Meantime, it becomes critical for taxpayers to carefully (re)consider their business set-up, the interaction with various subcontractors (either affiliated or not), the existence of trading licenses or incorporating legal forms of presence, particularly in countries like Romania where tax authorities embraced a broader interpretation of FE as compared to the CJEU interpretation and even extended their assessment across various business sectors and commercial schemes.


Georgiana Iancu



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