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Practical Handbook for Companies 2021

Definition of permanent establishment

Regulation:Article 13.1.a) TRLIRNR and Double Taxation Conventions

a natural or legal person is considered to operate through a permanent establishment in Spanish territory when by any title it has, on a continuous or habitual basis, installations or workplaces of any kind, in which it carries out all or part of its activity or acts there through an agent authorised to contract, in the name and on behalf of the taxpayer, who habitually exercises such powers.

The fundamental characteristic of the permanent establishment is the absence of legal personality distinct from that of its head office.

The following shall be understood to constitute a permanent establishment: head offices, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil or gas wells, quarries, agricultural, forestry or livestock farms or any other place of exploration or extraction of natural resources, and construction, installation or assembly work lasting more than six months.

If a taxpayer has several places of business in Spanish territory, they will be considered as separate permanent establishments and taxed separately if they carry out clearly distinguishable activities and their management is carried out separately.It will not be possible to compensation of incomes between permanent establishments different.

Double Taxation Avoidance Convention

If a non-resident taxpayer carries out economic activities in Spanish territory and is entitled to invoke the application of a Double Taxation Avoidance Convention signed between Spain and his country of residence, the specific article of the Convention defining the permanent establishment should be used to determine whether he operates through this figure.

In general, the Agreements signed by Spain are based on the Agreement model of the Organisation for Economic Co-operation and Development (OECD), which includes a somewhat narrower definition of permanent establishment than that of domestic legislation.However, the specific Agreement should always be consulted.

Likewise, as a general rule, the treaties confirm the taxing power of the State where the permanent establishment is located, providing that business profits, if obtained through a permanent establishment located in Spain, or income from professional activities, if obtained by means of or through a fixed base, may be subject to taxation in Spain, in which case they are taxed in accordance with Spanish domestic law.