[ Offshore Tax ] Spain Tax Implications on International Partnerships and Permanent Establishments
What is a Permanent Establishment?
A Permanent Establishment is a legal concept that is defined in Spanish law and tax treaties. It covers two factual situations:
A company's place of business (such as a head office) is located in a different country, through which the company carries out all or part of its activities (the "Place of Business" clause).
2. A dependent agent (the "Personal" clause).
Place of Business Clause
For a place of business to qualify as a Permanent Establishment, the following key requirements must be met:
Location: The company must have material resources and, if necessary, personnel located in the other country to carry out its activities.
Permanence: The place of business must be permanent over time. While no specific time period is defined, the 6-month timeframe from Article 5.3 of the OECD Tax Treaty Model is often used as a guideline.
Fixed Location: The place of business must be geographically fixed and established in a specific location.
Control: The company's head office must have control and disposal over the place of business.
Core Activities: The place of business must be used to carry out the company's core business activities, not just auxiliary activities (as per Article 5.4 of the OECD Model).
Personal/Agency Clause
Dependent agents (as described in Article 5.5 of the OECD Model) can also constitute a Permanent Establishment, with the following key characteristics:
Contractual Relationship: There must be a contractual relationship between the agent and the company.
Authority to Contract: The agent must have the authority to regularly conclude contracts on behalf of the company.
Legal Dependence: The agent must be legally bound to follow the company's instructions.
Economic Dependence: The agent must work for a single company or a small number of companies.
TIMESTAMPS:
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0:43 Spain partner's role affects tax status
1:25 Spain partner's role affects tax and compliance
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