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5. Business Presence Issues

a. How the Use of One or More Independent Contractors Creates a Permanent Establish-ment in Country and the Ramifications

It will be stated that a person or an entity operating through a permanent establishment in Spanish territory:

• when he acts in Spain, in any capacity and continuously or habitually, facilities or workplaces of any kind in which he performs all or part of the activity.
• when he acts in Spain through an agent authorized to contract on behalf of the non-resident, provided that such powers are habitually practiced.

Specifically, permanent establishments are considered every place of management, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil or gas, quarries, farms, forestry or livestock or any other place of extraction or exploitation of natural resources and construction, installation or assembly project which existed for more than six months.

When a taxpayer has various centers of activity in Spanish territory constituting different permanent establishments, each of them should be named differently and if it is a legal entity it must also obtain a different tax identification number for each permanent establishment.

Thus, we see how the concept of “permanent establishment” is not strictly linked to the provision of services by an autonomous, since it can provide its services with or without the existence of a permanent establishment.

b. How the Employment of One or More Individuals Creates a Permanent Establishment in Country and the Ramifications

Spanish law provides a general definition of what a Permanent Establishment is. In this way, a permanent establishment is defined as a fixed place of business through which an enterprise is wholly or partly carried on.

As noted in the comments to MCDI, the following three notes are to be given in the general definition of Permanent Establishment:

• the existence of a “place of business”
• the place of business must be “fixed” and,
• through this place of business must be “conducted business activities”.

The Committee of the Organization for Economic Co-operation and Development (OECD) of Fiscal Affairs considers the term “place of business” to include any premises or facilities to be used for the realization of economic activity of the company, whether or not exclusively used for this purpose. Note that for there to be a place of business would be enough to have a space available for the development of the activity. In this sense, it is irrelevant whether the use of the premises is done as the owner or lessee.

Moreover, it would not even require the existence of any legal right of use on the space used so you can come to understand that there is a permanent establishment because, as just noted, what is truly important is the effective and simple arrangement of a certain physical space for the development of the activity.

The term “place of business” is thus a term that can encompass diversity of possibilities, from the traditional offices to spaces as would be located in a business center. Also included in this term, is the space that could be given by a company to another of their group who were not resident in the development of the activity of the latter, but this assignment was free and was not formalized in a contract.

Any questions

Ask our member firm Suárez de Vivero in Spain