Corporate Income Tax – Permanent Establishment in Spain

Jun 20, 2023 | Tax Flash

The General Directorate of Taxes, in its binding consultation V2612-22, of 12/23/2022, has applied the doctrine of “complex operational settlement“, which began from several binding consultations in 2008, in the interpretation of the concept of Permanent Establishment (PE) of the Agreement to avoid Double Taxation (CDI) signed in 1994 between Spain and Ireland.

This doctrine basically consists of considering, in line with the provisions of paragraph 27.1 of the Comments to Article 5 of the 2017 OECD Model Convention, that “an enterprise cannot fragment a cohesive operating business into several small operations in order to argue that each is merely engaged in a preparatory or auxiliary activity”. In this way, in the case analyzed in the consultation, the DGT understands that the Irish parent company has a PE, as it carries out a significant part of all its activity in Spain, and because it is not limited to simple storage, but rather covers all logistics operations of the merchandise supply chain.

What is relevant to this consultation is that the DGT is applying the criterion of the OECD 2017 Model on PEs to the CDI with Ireland, which is prior to 2017, when this interpretation can only have prospective effects (that is, on the CDIs after the OECD 2017 Model). In this way, the DGT seems to consider that the doctrine of the “complex operational settlement” is applicable in any case, regardless of the date of the CDI applicable between Spain and the State of residence of the non-resident entity that carries out an activity in our country.


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