Wednesday, 27 June 2012

Spanish permanent establishment case demonstrates importance of operational reality

The Spanish Central Tax Court (SCTC) published a decision in June of 2012 (originally issued on March 15, 2012) regarding a nonresident company that was deemed to have a PE in Spain.  The nonresident entity was part of a larger related group that included a Spanish subsidiary.  It appears from the facts in the published decision that the taxpayer intended to utilize a principal and commission agent structure and claim that the nonresident company should not be subject to taxation in Spain.  However, the Court's decision relied heavily on the facts and determined that the 'operational reality', i.e., the substance of the activities, was that the nonresident company had a PE in Spain.  This decision demonstrates the Spanish tax authority's keen focus on the underlying substance when analyzing PE issues.
Source & more info: PKN