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Practical Manual of Companies 2022.

Definition of permanent establishment

Regulation : Article 13.1.a) TRLIRNR and Conventions to avoid double taxation

A natural or legal person is considered to operate through a permanent establishment in Spanish territory when for any reason it has, on a continuous or habitual basis, facilities or workplaces of any kind, in which carries out all or part of its activity or acts in it through an agent authorized to contract, in the name and on behalf of the taxpayer, who regularly exercises said powers.

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

It will be understood that constitutes permanent establishment the headquarters of management, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil wells or gas, quarries, agricultural, forestry or livestock operations or any other place of exploration or extraction of natural resources and construction, installation or assembly works whose duration exceeds six months.

If a taxpayer has several centers of activity in Spanish territory , they will be considered different permanent establishments and will be taxed separately if they carry out clearly distinguishable activities and their management is carried out separately. The compensation of income between different permanent establishments will not be possible.

Convention to avoid double taxation

If a non-resident taxpayer carries out economic activities in Spanish territory and has the right to invoke the application of a Convention to avoid double taxation signed between Spain and his country of residence, the specific article of the Convention that defines the permanent establishment must be used to determine if it 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 agreements confirm the power of taxation of the State of location of the permanent establishment, providing that business profits, if obtained through a permanent establishment located in Spain, or income from professional activities, if obtained by or through a fixed base, may be taxed in Spain, in which case they are taxed in accordance with Spanish domestic law.