Tax Flash: Dell Case - The Spanish Supreme Court expands the concept of permanent establishment (PE)

The Spanish Supreme Court, in its judgment of June 20, 2016 (Dell Case), stated that an Irish tax resident company operated in Spain through a permanent establishment (PE), developing its Spanish operations through its Spanish subsidiary and using the latter’s facilities and staff. Therefore, as a consequence of having a fixed place of business or a dependent agent in Spain (one of these two requirements is enough) such Irish company is considered to be a taxpayer for the Spanish Corporate Income Tax purposes.

This judgment is the conformation of the criterion already applied by the Central Economic Administrative Court in its decision dated March 15, 2012 on the same case, which was analyzed in our Tax Flash of March 20, 2014.

In our opinion, this judgment will probably be used by the tax authorities when challenging the existence of a PE, specially in the case of groups that, as a consequence of a restructuring, the risks and functions attributed to the Spanish subsidiaries were changed or in those cases where the non-resident entity is that which (as this is not a person who should not be used) who directly invoices the final Spanish customers.

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