Concessionaire structures within multinational groups in Spain
On June 20, 2016, the Supreme Court handed down its judgment in respect of the cassation appeal filed by DELL Products Ltd (‘Dell’) against the judgment of the National Appellate Court dated June 8, 2015. The Supreme Court dismisses the cassation appeal and confirms the line of interpretation adopted in earlier judgments, in which the conclusion was reached that a company not resident in Spain can have a permanent establishment in Spanish territory owing to the pursuit of the activities of its subsidiary in Spain and the commission agreement between them.
The existence of an establishment in Spain means that the income attributable to such establishment is taxable in terms similar to those applicable in the taxation of resident entities, which are currently taxed at a rate of 25% on their profits.
Within the framework of transactions with countries with which Spain has signed a Double Tax Treaty, the existence of a permanent establishment must be determined in accordance with the provisions of such treaty.
In the case to which the Dell judgment relates, there were two aspects to be analyzed: (i) the existence of a fixed place of business in Spain, and (ii) the existence of a dependent agent.
The Supreme Court adopts a highly flexible approach in its interpretation of the term “fixed place of business” and therefore does not require the existence of a direct relationship and that physical use be made of the establishment by the nonresident entity. Based on this criterion, it concludes that there does exist a permanent establishment in Spain because Dell performs functions at the facilities in question and does so through the personnel of its subsidiary in Spain. This could be interpreted as indicating that the distinction between the functions of the subsidiary and those of its parent company is somewhat blurred.
On the other hand, the Supreme Court ratifies the restrictive interpretation of the term “independent agent” as used in the Treaty. Its findings are based on the conclusion that a functional and factual analysis is required, reviewing the scope of and limitations to the instructions given, the level of control, risks assumed, etc. by the principal in relation to the agent. The Court adds that the most characteristic feature, in its opinion, is economic and operational disassociation and actual autonomy.
This judgment will force multinational groups with operations in Spain to review their structures in Spain insofar as relates to the supply chain and commissionaire arrangements.
Garrigues Tax Law department
This article was publised on Diari de Tarragona