Sep 22, 2022 | Tax Flash
In accordance with art. 76.1.d) of the Personal Income Tax Regulations, non-resident entities operating in Spain without a Permanent Establishment (PE) must withhold personal income tax on the salaries paid to tax-resident workers in Spain.
In other words, what determines the obligation to withhold (and, consequently, the registration for tax purposes in Spain) is that they are entities that carry out operations in Spanish territory, even if they do not have a PE, as confirmed by the DGT in several consultations (among them, V2221-19, of 8/19/2021).
The Central Economic Administrative Court (TEAC) has issued a recent resolution on 6/28/2022 exonerating a non-resident entity without PE that does NOT operate in Spain from withholding, as all it does is paying a retirement pension to a n individual tax resident in Spain which is subject to his / her Personal Income Tax Income tax.
Sep 6, 2022 | Tax Flash
On 1 January 2022, Spain’s instrument of ratification of the Multilateral Convention on the application of tax treaty measures to prevent base erosion and profit shifting entered into force, and its provisions will take effect once Spain has communicated the completion of its domestic procedures to those countries with respect to which the Convention is in force.
In this regard, the Ministry of Finance and Public Administration has begun to publish, on the Ministry’s official website, the summary texts of the Double Taxation Conventions that are being modified by the Multilateral Agreement as they are being ratified by the two parties, in order to facilitate their understanding. You can access them via this link.
For example, you can read the “updated” Double Taxation Convention with the United Kingdom HERE.
Finally, it should be noted that these summary texts are for information purposes only.
Apr 21, 2022 | Tax Flash
The Spanish Tax Authorities, in their binding consultation V0066-22, dated 18/01/2022, analysed the possible consideration of Permanent Establishment (PE) of a company resident in the United Kingdom derived from the displacement to Spain of one of its employees to telework from his home.
In this case, as this was a unilateral decision by the employee, without the British company bearing any costs, it is understood that his home is not at the disposal of the company and, consequently, does not constitute a fixed place of business or, therefore, a PE.
Feb 22, 2022 | Media, Tax Flash
As part of our policy of increasing specialisation of our services, we announce the launch of our UK Desk, led by our partner Barry Donegan, with the aim of coordinating and advising in a very close and “one-stop-shop” format to British multinational groups with subsidiaries and/or interests in Spain (as well as individuals of that nationality), in all those legal, tax and operational matters that they may need.
The increasing complexity of the operations and negotiations with the UK in recent times, has led us to take a step further and proceed to the creation of this new UK Desk, to coordinate and concentrate the care of the interests of this important group of clients, advising on the flow of legal, investment, financial and commercial operations between the UK and Spain.
In the following LINK you can access more information about this new area, as well as its manager Barry Donegan. The latter also participates in the ETL Group’s International Desk, which includes, among others, our UK offices.
Barry Donegan
bdonegan@etl.es
Responsable UK Desk
Dec 28, 2021 | Tax Flash
An advisory report issued by the Tax Authorities has been published recently in their official website, referring to a Spanish conflict-of-law case, related to the possible withholding tax obligations applicable on payments of interest made to a Non-Resident company.
Please find attached this report (in Spanish).
In this particular case, the Tax Authorities analyse the applicability of withholding tax on interest paid by a Spanish company belonging to a US group to a related Dutch shell company, considering that the amounts owed by the Spanish company were actually due to the US parent company.
The advisory report refers to the withholding tax on Non-Residents income tax on interest paid to a non-resident Dutch shell company.
In this case, the Dutch company is not the beneficiary of this income, but a purely shell company without actual presence in the Netherlands, acting as a mere intermediary “de facto”.
In this sense, the Netherlands’ Tax Authorities provided Spain with spontaneous information on the status of this Dutch company, stating that this entity did not fulfils all the requirements stated in the Netherlands to companies paying or collecting interest.
- This company does not have employees.
- Its domicile is located at the legal domicile of a trust office where more than 4.000 companies are domiciled.
- The Dutch Tax Authorities state that this company does not have actual presence and substance in the Netherlands.
- The members of the Board of Directors are Dutch residents with management positions in the trust office, or American residents and are managers of the American parent company.
- The Dutch company obtains exclusively financial income, which in more than 99% correspond to the amounts borrowed by the Spanish company, and the only asset in the Dutch company are the loans granted to the Spanish company,
- The liability of the Dutch company is composed by debts incurred with the US parent company.
- All the amount lent to the Spanish subsidiary is obtained through loans obtained from the US parent company, and its expenses correspond to the interest accrued on the amounts lent by the US parent company.
- The Dutch company transfers its income to the US shareholder through dividends distributions and by making available its cash surpluses.
- The agreements subscribed between the Spanish and the Dutch companies are ruled by the Laws of the state of New York.
Those elements evidence that the Spanish subsidiary is financed by the US parent company through the Dutch company. In addition, the payment order does not come from a Dutch bank, but directly from a US branch of the bank.
This leads the Tax Authorities to the conclusion that the origin of the funds obtained by the Spanish Company is located in the US and, in particular, in the US parent company.
Therefore, the only function performed by the Dutch company is to serve as a tool for channelling funds between the two intervening parties, the US and the Spanish company: receiving funds from the US shareholder to finance the Spanish company: with the interest earned from this company it pays interest and distributing dividends to the US company, and with the principal repaid by the Spanish company, it pays back the capital lent by the US shareholder.
In consequence, the Tax Authorities consider that the parent company, and not the Dutch company, is the actual beneficiary of this financial income, as this company receives the financial income from the transaction through interest, dividends and the cash surpluses made available by the Dutch company.
The Tax Authorities conclude that transactions, considered as a whole, are cunning and artificial with the purpose of obtaining a tax advantage: the reduction of the taxation in Spain.
Carrying out the usual transaction that corresponds to the economic substance of the interest payments, the Spanish company would have been obliged to withhold 10% on the amount paid (as per the USA-Spain tax treaty).
Nov 9, 2021 | Tax Flash
The DGT, in its binding consultation V1067-21, of April 23, 2021, on the forgiveness of credits between sister entities, fully owned by the same company, establishes that in the absence of a special rule, it is considered that the dependent owner of the credit makes a distribution of reserves in kind to its parent, and that this contributes it to the other subsidiary. Nevertheless, with respect to the parent company, it points out that it obtains a taxable income, without prejudice to the fact that the exemption may be applied, and on the other hand the value of its participation in the entity to which the loan is forgiven is increased.
Given that the exemption on the perception of dividends reaches, from January 1, 2021, 5%, it should be understood that these write-offs within a group have a cost in the IS of the parent / group of 1.25% (5% x 25%).
