By Eduardo Sánchez / Tax Partner in San Telmo Abogados y Economistas
The question is whether employees that are working at their homes and not in premises at the disposal of the corporation may constitute a PE for Spanish tax purposes
When a company is planning to design a mobility policy of its workforce to foreign countries one of the hot topics that has to be addressed is whether the relocation of employees in a foreign jurisdiction may create a permanent establishment (PE) exposure for Corporate Income Tax (CIT) purposes in said jurisdiction.
This issue is not a minor one because, as long as, a company has a PE for CIT purposes in a country, such company should be subject to CIT for the income attributed to such PE. When analyzing this issue we should take into consideration not only the domestic law of the country where the employees are working but also the double tax treaty (DTT), if any, concluded between the country of residence of the company seconding its employees and the former. In case that a DTT is in force, such treaty should impose its PE definition over the one foreseen in the domestic law.
Spain has a domestic definition of the PE that is almost equal to the PE definition of the OECD contained in most of its DTTs. The Spanish Non Resident Income Tax (NRIT) considers that an individual or a corporation acts in Spain through a PE when, for any title, has, on a continuous or regular basis, facilities or workplaces of any kind, in which it carries out all or part of its activity, or acts therein through an agent authorized to contract, in the name and on behalf of the taxpayer, who habitually exercises such powers. In particular, it shall be understood that management headquarters, branches, offices, factories, workshops, warehouses, stores or other establishments, mines, oil or gas wells, quarries, agricultural, forestry or livestock farms or any other place of exploration or extraction of natural resources, and construction, installation or assembly works whose duration exceeds six months, shall be deemed to constitute a permanent establishment.
Once stated the foregoing, the secondment of employees to Spain by a foreign corporation without previous presence in said territory may raise concerns regarding the PE exposure in this jurisdiction.
Focusing on remote workers the question is whether employees that are working at their homes and not in premises at the disposal of the corporation may constitute a PE for Spanish tax purposes.
There is a binding ruling (V3286-17) issued by Spanish Directorate of Taxes (DGT) that states that an Irish company with an employee in Spain that is working from its domicile does not constitute a PE for Spanish tax purposes.
Thus, in principle, the secondment of employees to Spain that will work from their particular domiciles may not create a PE in Spain. However, as you may know, the PE issues are quite complex and should be analyzed on a case by case basis also taking into consideration how the international taxation landscape is rapidly changing.