ERGEBNISSE

The guidelines related to establishments in a foreign country by means of a branch or permanent establishment, (we refer to features that are not operating with own legal nature), have already been exposed with previous postings. The incorporation of a subsidiary company abroad (or in Spain being a foreign company) takes us one step further. What is a subsidiary company The RSA Glossary defines that a subsidiary company is a feature that is controlled by another company. Unlike a permanent establishment, the decision to incorporate a company abroad implies that the entity is autonomous, with legal personality and therefore responsible for its own debts. It will have its own articles of association, its own management and administrative board. Moreover, it may -or it may not- distribute dividends to the parent company. The parent company will have control of the subsidiary by holding shares, but both will be legally and fiscally independent. Therefore, the foreign subsidiary (or Spanish subsidiary in the case of a foreign parent company that wants to set up here) will be considered as resident in the established territory, unlike its parent company (obviously, a subsidiary can be established within the same country, but that is another case). Why is this interesting? There are multiple strategic reasons; to separate responsibilities, to divide production, to segment markets, to diversify risks... and also for tax optimisation. Holding Corporation The parent company will be the holding corporation, which can operate as a "pure" holding company. It also may have its own business line. Each case is a particular one, we therefore recommend to review the scenario and territory for a set-up thoroughly, before performing. Double taxation agreements of the different countries in relation to the operations between parent and subsidiary must be analysed. Setting up a subsidiary will entail formal and tax obligations, almost identical to those of a normal company. But it represents benefits on strategical scopes, that will result in profits on monetary terms, too. Do you own a subsidiary company or would like to establish one? Contact us. Carrillo Asesores International Department will be glad to help you.

Reference is made to our previous posts related to problems that may raise whilst declaration of income in different countries. Depending on the characteristics of the activity, this problem can be especially harsh for artists and actors when undertaking performances abroad. In fact, all countries want to get “a share of the cake”. Eradicating problems is essential for having a clear guideline of how to work correctly beforehand. Thus avoid unpleasant surprises, at a later time. Keys to international taxation of Spanish artists and actors Thinking about a scenario comprising an international tour with concerts or performances in different countries… where is the artist or actor, who is considered a Spanish resident for tax purposes, expected to pay taxes? (please refer to the residence criteria). When a resident of one country obtains income in other countries, the preliminary factor to be taken into account is the Double Taxation Agreement between those two territories; it is crucial to study the place of taxation of said income, according to the type of income obtained. Under the assumption that it is concluded that such income should be taxed in the territory where one is not a tax resident, then the correct way to proceed (either by means of a Non-Resident Tax return from that country, or directly with a withholding on the invoice...) must be determined. In case of independent professionals and with regard to Personal Income Tax (IRPF in Spain) within the country of our residence is concerned, this can rebate up to the limit allowed by the Convention, thus avoiding paying taxes twice for the same concept. Example of how an artist based in Spain pays international taxes Say, an actress living in Spain executes performance in another country, for which she will be paid 1,000 euros. According to the agreement between Spain and that other country, the income must be taxable in the country where the performance is executed (in this case, the foreign country). Therefore, under the assumption that a withholding of non-residents for that concept in that country is 14%, the correct compliance would be retaining 140 euros to the actress’s invoice, and to provide her with a relative certificate. Subsequently, the actress's Spanish personal income tax return, with the necessary documentation in her hands, will indicate an income of 1,000 euros, which will result in an amount payable, from which those 140 euro retained and executed in the foreign country can be compensated (we assume that the legislation allows the entire amount to be compensated). Therefore, when planning an international tour or performance, we recommend to have an adequate tax planning, it will prevent economic harms for tax adjustments abroad. Moreover, it will minimize the tax burden in the country where one is resident by paying taxes twice for the same concept. Are you an artist, contact us. Please follow this link and we will contact you as soon as possible.

It was issued in 2008, but with a last amendment in November 2015, the Rules for Mutual Agreement Procedures in the field of direct taxation have been in force. This concept of Mutual Agreement Procedures (MAP, Mutual Agreement Procedure) may sound familiar to us if we are familiar with double taxation agreements as there is usually an article in them that talks about them and establishes certain rules and deadlines to be followed (the agreements that follow the OECD model). Mutual agreement procedure mechanism characteristics This mutual agreement procedure mechanism, as it is provided in the double taxation conventions (there are other mutual agreement procedures regulated by the European Arbitration Convention, which, although they have some common aspects with which we are referring, are somewhat different), has some noteworthy characteristics: It is not at all incompatible with the economic-administrative route. In other words, the taxpayer can go to court and at the same time request a friendly procedure (which will often be resolved “de facto”) It is possible that the procedure will end without resolution. No judge or court is obliged to give a favourable ruling in whole or in part to one of the parties. The taxpayer has to apply for this in the country where he is resident under the agreement, whether the proceedings are to be initiated by the administration of the state where he is resident or by the administration of the other state to which the case relates. In Spain, it will be presented to the Tax Office or the Directorate General of Taxes depending on the case. There is no specified time limit to resolve. Reasons for a mutual agreement refuse If the mutual agreement procedure is applied in Spain, the taxpayer, who must provide all the necessary documentation duly required by the administration, must take into account that he may be refused to initiate the mutual agreement procedure for various reasons. Submitting the request is not always synonymous with the fact that the case will be reviewed (e.g. because of problems with deadlines, lack of documentation, not being a problem with the agreement, etc.): Voluntary withdrawal by the taxpayer Termination by agreement not to eliminate double taxation or non-conforming taxation. Termination by agreement to eliminate double taxation or inconsistent taxation. These mutual agreement procedures can help in certain cases and given their compatibility with the judicial system, it may be interesting to request one (normally it is a period of three years from the occurrence of the event that gives rise to the double taxation dispute). If you have doubts about your case and need an opinion on the convenience of presenting a mutual agreement procedure, or if you have already decided on it and want to go ahead with the application, do not hesitate to contact us. Our International Department will be glad to help you.

In which Spanish autonomous region should a tax on donation apply to a non-resident? A recent binding consultation of the General Directorate for Taxation has clarified, where a donation - made in form of cash from a parent to a child who is not resident in Spain - should become effective. This liability is regulated by the donations and inheritance tax system. Nowadays this kind of situations are quite common. Spanish citizens who have moved abroad to work, the parents donate a property, the money is obtained from sale, or inherited by succession. This scenario uses to raise doubts as far as receivers are working abroad, either being residents of the UE or not… tax liabilities are not clear. The case of a donation to a non-resident A married couple living in Madrid in 2014 sold a property they owned in the autonomous community of Castilla-la Mancha. Within a year of sale, the couple wished to donate the money obtained from that sale to their daughter. The daughter does not live in Spain and she further does not have her tax residence in Spain, but in Denmark. What does the legislation say? The Corporative Income Tax Law states, in accordance with the provisions of the European Community Court of Justice 3-9-14, case c-127/12: movable properties located in Spain, acquired by donation or other legal transactions free of charge and “intervivo”, assigned to taxpayers who are not resident in Spanish territory, but who are based in another state of the European Union or within the European Economic area, do have the right to apply to regulations of the autonomous community where the bespoke assets have been located for a greater number of days in the period of five years immediately preceding. Period counts from date to date, ending on the day before the tax accrued (Corporative Income Tax add. disp. 2. one. e). What should be taken into account? Donation is made by Madrid residents. Donation is in favour of a donor with tax residence in Denmark. Object of the donation is money from the sale of a property located in Castilla-la Mancha. The sale was executed less than a year ago. However, is it compulsory for the money to be in the hands of the donors for a number of days within the aforementioned period of foregoing five years? Moreover, is the lapse of period unnecessary. It is considered that the money was generated at the time of the sale of the property and, therefore, the regional regulations of Madrid apply from that moment onwards? What does the Ministry of Finance say? The Authority dictates that the calculation achievable to determine where a certain movable property (the money) has been over a period of five years prior to accrual, should only be taken into account when the movable property has been owned for a period of five years or more, but not when it has been owned for a period of less than five years. In fact, the Corporate Income Tax does not require possession for a certain minimum period on purpose of applying the above additional provision, moreover not every transaction of movable property must have, as its sole claim, a mere tax advantage. Illustrative example If you live in Spain by the year 2016 and you want to sell and donate the money to your child living in England, you will need to consider the following: If it is a property. You will be taxed in the autonomous community where the property is located. If it is money. You have to clarify where such cash was generated - or the taxable event that generated such income - and you will be taxed in that autonomous community. Knowing in advance that there are autonomous communities where the taxation is lower than others is crucial. In Murcia currently there is a 99% tax credit for donations from parents to children and/or wives or descendants, which represents advantages on these donative transactions to-date. Conclusion In those cases when the movable property being the object of the donation has been owned by the donor for a period of less than five years, the calculation to be made in order to know where the movable property has been for a greater number of days within bespoke period is compulsory. Therefore, determining the regulations of the autonomous community applicable, in relation to the period referred to in Corporative Income Tax Laws, disp. 2, must be understood as referring to the period in which the donor was the owner of said property (and not the five-year period). Subsequently, knowing the autonomous community regulations that do apply to the donation of money, and determining the period in which the said property has been in the possession of the donor, is crucial. Contact us freely for any additional information!

Our previous post stated that one of the options allowing the expansion of business into a country that is not the companies’ original country of residence, is a permanent establishment. This facility does not have its own legal personality, but as far as the performance is concerned, it is quite independent, (regarding tax criteria, but not in terms of management). Its income and expenses run separately from those of the parent company. Differences between branches and permanent establishments The differences with the permanent establishment are basically those that arise between the tax and commercial regimes. In other words, we may say that every branch is a permanent establishment, but not every permanent establishment is a branch. In fact, the Law on Non-Resident Income, where permanent establishments are defined in its Article 13, states: "Management headquarters, 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 works whose duration exceeds six months shall be understood to constitute permanent establishments". In commercial terms, permanent establishments do not exist, since it is a purely fiscal concept, but branches in Spain are mainly governed by Royal Decree 1784/1996, of 19th of July, which approves the Regulations of the Commercial Register, specifically in Articles 295 and subsequent. The incorporation of a branch involves a series of commercial formalities. These end with the signing of the deed of incorporation at the notary's office. This incorporation is registered in the Commercial Register, the same pursuits as for the incorporation of an ordinary company or a foreign subsidiary apply. Registering a Branch However, in views of the lack of legal personality and subsequent liability (the parent company is responsible), it is crucial to bear in mind that there are a series of additional commercial commitments, such as the fact that once the branch has been incorporated and registered, the application of several files required by the Commercial Register referring to its foreign parent company, among others, will be compulsory: - the change of name or registered office is one of them. The renewal, appointment and removal of board of managing directors. Dissolution, appointment of liquidators, termination of liquidation and bankruptcy or insolvency proceedings of the foreign parent company. In most of the cases, those companies being resident in a state differing to the state of its permanent establishment for tax terms, but aiming to grant a wider management autonomy (besides other eventual market reasons, such as providing local brand identity to the non-resident company in that territory or transparency, such as filing accounts in the Register of that country), should approach a formal incorporation of a branch with a representative who is given powers of attorney. This pursuit is not a fiscal obligation. Its nature as a permanent establishment will allow the profits to be taxable in the country where benefits are born, regardless if it is formally a branch. From our International Department at Carrillo Asesores we can help you establish yourself abroad. Contact us. we will be delighted to assist you.

A publication issued by “infoLibre” media on February 22nd, 2021 reported that - as a consequence of a notice spread through the "Football Leaks" portal - Real Madrid apparently accepted a financial operation with a serious tax risk. Independently to the criteria that we may have concerning the news or with regard to anyone’s behaviour, it may be interesting to review this topic with a highlight on the relevancy of the concept of beneficial owner, when it comes to perform international transactions; in addition to the tax damage that may be caused by its incorrect application or interpretation. Tax fraud in international loans and royalties In fact, a closer view at the notice mirrors on a Spanish legal entity (in this case “Real Madrid”), who has made payments to a legal entity in another EU country, in this case Luxembourg. Our previous post refers to the European Council Directive 2003/49/EC, say: "Interest or royalty payments from a Member State shall be exempt from any tax on such payments (whether collected by withholding tax or by assessment) in that source State, provided that the beneficial owner of the interest or royalties is a company of another Member State, or a permanent establishment situated in another Member State of a company of a Member State". Certainly, the controversy arises because the beneficial owner actually seems to be a company based in a country outside the European Union; in this case the Cayman Islands. Is that really a problem? Absolutely none! The directive would simply not apply, while the country issuing the payments usually would be obliged to make a withholding on account of non-resident income tax, in this case 24%, as the beneficial owner is from outside the EU (unless a possible agreement limits this taxation). All this may seem to affect only large multinational companies, but this is not necessarily the case. Let us view the following example, which will give us an accurate idea of the impact: Spanish company “X, S.L.” (of limited liability) enters into an agreement with Italian company “Y” to exploit its trademark, whilst execution of royalty payments of 100,000 euros per year. At first and by virtue of the aforementioned European Directive, these payments will be exempt from withholding tax in Spain and the Italian company will declare them as income for Italian corporate income tax purposes. However: What would happen if the beneficial owner is, in fact, a company based in a third country “Z”? The following scheme will help us to understand the differences: For the Spanish company there is no difference, at all; it pays the same either directly to the owner of the royalty, or by making the relative withholding. However, if no withholding tax was applied but effectively due, then the Spanish tax department may require that amount. Subsequently, a disbursement of 100.000 € will additionally raise 24.000 € required by the Authorities (plus penalties and interest). While some countries, such as Portugal, do have specific procedures for this purpose, the form does not officially exist in Spain, by now. Other means for compliance shall apply. Therefore, when working with non-resident companies, we recommend reviewing the performances "a priori" to avoid problems "a posteriori". In too many cases, bearing the initial cost of analysing a transaction accurately will turn into a very profitable investment, in the future. Do you need further assistance with this? Contact us. Our International Department will be glad to help you.

A closer focus on the structure titled as Permanent Establishment shows that, according to Tax Office regulations, the stipulations referred to VAT and to corporative tax applicable, are not the same. Although our previous post describes the feature of a Permanent Establishment and its tax obligations, the Value Added Tax compliance requires a closer review. VAT and corporative tax for permanent establishments Taxation of VAT may apply on Permanent Establishments; however, Corporate Tax is based on criteria of international treaties and agreements. Article 84 of Law 37/1992 on value added tax defines as taxpayers: 'On purpose of this Article, taxable persons are those established in the territory of application of the tax if they have their place of business, their domicile for tax purposes or a permanent establishment involved in supply of goods and services subject to the tax. Such a fixed establishment is supposed to carry out supply of goods or services, arrangement of materials or human factors of production on purpose of carrying out each supply. Formerly, the law defined in its article 69: "Permanent establishment: any fixed place of business where entrepreneurs or professionals carry out business or professional activities". Therefore, a taxpayer for VAT purposes is titled as such, when supply of goods or services is involved. However, when referring to Corporate and Non-Resident Income Tax, then the definition given by the Double Taxation Agreement between Spain and the relative country will apply. This definition, depending on the country, may explicitly exclude certain cases such as Permanent Establishment. For example, asset depots, warehouses or similar. These, according to directives of the VAT law, may be considered as Permanent Establishment for the purposes of this tax. It certainly would imply formal obligations when it comes to pay corporate and non-resident income tax in Spain. Even though they may not include the obligations of a Permanent Establishment. This may not be the norm, but when it comes to set-up certain "premises" in a foreign country (or acting in Spain as a foreign company), it is recommended to ensure that compliance with current legislation is fulfilled. If you manage a Permanent Establishment in Spain or out of Spain, contact us. We can assist you on any legal requirements.

Moving abroad and becoming a tax resident in that country, means categorizing as an income tax payer. In certain cases, this may be detrimental to the taxpayer, due to the progressive nature of the Personal Income Tax, in relation to rates of Non-Resident Income Tax, the latter being more steady. However, different alternatives for the taxpayer can be evaluated. The Personal Income Tax Law regulates this scenario. In fact, we are referring to the special regime for taxation of non-residents for Income Tax. It is applicable to certain individuals, who would normally be subject to income tax rules. This regime consists of maintaining the condition as taxpayer for income tax. It will do so by paying the Non-Resident Income Tax, under appliance of respective rules. To whom does this special regime of taxation of non-residents apply It affects those taxpayers, who have acquired tax residence in Spain by relocation. It can be applicable during the tax period of change of residence, and during a subsequent period of five years. However, the following conditions must be accomplished: The taxpayer has not been resident in Spain during the previous ten tax periods. The relocation is either due to an employment contract (except for special employment relationships of professional sportsmen and women), or because the taxpayer has become a director of an entity that is not linked, according to the criteria of the Corporate Tax Law. No income classified as achieved through a permanent establishment in Spain. It is important to point out that the option of taking advantage of this special non-resident tax regime also implies that the taxpayer will be subject to Wealth Tax stipulated by Spanish Council obligations. The following terms must be viewed, under the assumption that profile is granted for choosing this special regime. Execution of a detailed analysis and review to conclude whether conditions are of interest for tax purposes. Depending on the type and amount of income, there may be notorious differences between paying income tax according to the rules of income tax, and those of non-resident income tax. At Carrillo Asesores we are delighted to assist you for resolving any doubts. Our Tax Advice Department is at your service, do not hesitate to contact us.

Our previous posts related to the exemptions at origin of the interests of loans between international group companies remarked that the concept of the effective beneficiary is essential. The same applies to exemption of dividend distributions in a group of companies from different EU countries. Besides the rest of requirements for the application of this regulation, defined in the European parent-subsidiary directive (click here in Spanish), this directive does not explicitly contemplate the concept of beneficial owner and does not refer to it. In fact, Article 5 just states: "The profits distributed by a subsidiary to its parent company shall be exempt from withholding tax at origin". However, both double taxation conventions and the European Union's own court of justice do take this into consideration, at least for practical purposes in an implicit way. In some rulings the application of the benefits of the directive is rejected when the beneficial owner is supposed to reside in a third state outside the Union, even though the parent-subsidiary directive itself does not indicate anything in this aspect. In fact, it makes sense to think that a directive that is designed to encourage capital movements within the European Union and to equate the dividend exemptions provided for in national legislation (as in Spain in Article 21 of the Corporate Income Tax Act) to the whole of Europe, if the part that "enjoys" those dividends is actually a resident of a third country, the part should not benefit from the possible advantages of the regulations. Sometimes problems of this kind can arise even without being a third country. For example, if we talk about certain territories such as Gibraltar (there is a ruling of 2 April 2020 where the Court of Justice of the European Union leaves out of the Directive a company incorporated in this area). Distributed benefits Although it is also true that - on the other hand - the norm only talks about distributed benefits and nothing else. Therefore, when considering an international group structure for tax purposes, it is recommendable to be clear about the dividend policy. Also whether or not this policy can lead to interpretations by the different European tax agencies. These interpretations could cause us some economic damage, either by the actual beneficiary of these dividends or by any other requirement. These aspects deserve an important part in the study of the tax planning of international groups with companies in more than one country. Do you need clarification of any of this concepts? Contact us. Our International Department will assist you with further information.

International business structures with representation in different countries may lend resources to each other. Will do this in order to finance themselves in an appropriate manner. Always respecting existing regulations on related-party transactions. A group company in one country may therefore lend money to a group company in another country, at market rates. But in which country will this interest income be taxed? If we refer to EU countries, Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States states in Article 1: "1. Interest or royalty payments from a Member State shall be exempt from any form of taxation on such payments (whether collected by deduction at source or by assessment) in that source State, provided that the beneficial owner of the interest or royalties is a company of another Member State or a permanent establishment situated in another Member State of a company of a Member State.” The concept of beneficial owner According to requirements and restrictions described in the Directive (available here in Spanish), interest generated by loans from another company not resident in the same country will initially be exempt in the home state. However, the concept of "beneficial owner" referred to in the Directive and also commented on in the OECD model double taxation agreement and in the various bilateral conventions between countries should be emphasised, as it is a concept originating in the Anglo-Saxon legal system. To this end, we find the analysis of the ruling of 26 February 2019 of the Court of Justice of the European Union very useful. It should be borne in mind that this ruling focuses the definition of this concept solely on interest payments between associated companies from different member states. It is not a mere intermediary or intermediary company The beneficiary of this interest must be effective for the exemption to take place. That is to say, it is not a mere intermediary or intermediary company, but it must have the power to freely dispose of this income. It is possible for a company to receive the interest, but not be considered the beneficial owner of it . Therefore the exemption cannot apply. As the taxpayer will be responsible for proving his status as the beneficial owner to the authorities in the event that he is required to do so because of a possible misapplication of the interest exemption, this aspect should be well documented both with regard to the loan itself and in the agreements between the associated companies. Contact us to solve any doubt. Our International Department at Carrillo Asesores we will be glad to help you.

More and more companies are launching online sales of their products. At the same time, more and more individuals are using this channel for their purchases. Our previous publications already stated that the sale to individuals on the Internet may have a specific treatment with regard to VAT topics, but in addition to this, the obligations to issue an invoice may vary depending on the residence of the individual buyer. So we may have to adapt our e-commerce software. Being a company means that I do have an obligation to issue an invoice in the online sale to individuals? Obligation to issue an invoice in the online sale to individuals Article 2 of the invoicing regulations lists the cases in which an invoice must be issued. In addition to pointing out that the recipient may require the issuance of the invoice, subsequently the obligation for the company to issue it, effectively exists. Even when it is not required, it will be mandatory with regard to online sales to individuals for: Sales to private individuals outside the European Union (exports). Sales to EU countries if they are sales with Spanish VAT (not under the distance selling regime) and the requirements to issue a simplified invoice (old tickets) that can replace a full invoice are not met. In fact, if the sale is made to a private individual in an EU country using the distance selling system, there rather would be no obligation under the invoicing regulations, unless the recipient requires it. However, the domestic legislation of the country in question will probably require issuance of an invoice (Spain does this for foreigners operating under this system, standardized at European level). Subsequently there will also be an obligation to issue an invoice here. Attention! In this case it would be under the conditions of the corresponding country (in its language, its currency, with its formal requirements, with other legal deadlines for the obligation to keep them...) which could cause management and computer adjustment costs. When the obligatory issuance of invoices is omitted severe sanctions may be applied It is important to bear in mind that serious tax infringements can be the case, even fines under the General Tax Law may be the consequence and severe sanctions may be applied, depending on the invoicing volume, when the obligatory issuance of invoices is omitted. We therefore suggest to consider these guidelines when starting our challenge of online sales, or for those undertakings already initiated. Contact our International Department to clarify anything about this. We will be glad to help you.

Performing activities abroad (or in case of being a non-resident company in Spain), may be considered as operating through a Permanent Establishment (“PE”) on tax purposes. However, determining if achievement of activity is really made in form of Permanent Establishment is not always easy. Performing a business in a territory other than that of non-residence, even when it is done presentially, is not a condition as such for being categorized as a Permanent Establishment. In addition to domestic legislation, Permanent Establishments mirror to international double taxation treaties. However, these definitions may not be perfectly adapted to our particular case in the way set out in the conventions. In addition, grammatical aspects can play tricks on the adjective "permanent": Can a temporary activity, carried out in a country where one is not a resident, be considered a Permanent Establishment? Fact is that the convention may issue statements, such as the following. "For the purposes of this Convention, the definition 'permanent establishment' means a fixed place of business through which a company carries on all - or part - of its activity". In accordance with the Agreement stipulated by the Organization for Economic Co-operation and Development, several conditions can be distinguished here: Business location; that is, facility, premises... Fixed; a place established with a certain permanence. Activities performed in that fixed business place. Permanent establishment for seasonal and/or temporary activities In those cases of temporary activity, it seems that the term "fixed" may be the one "breaking" the conditions necessary to be considered a Permanent Establishment. However, the comments clearly state: although countries usually adhere to the dictum that an activity will not be temporary if it exceeds six months in duration, it is possible that the very nature of the business requires that it can only be carried out in a short period of time. Subsequently, there are exceptions to this rule. These should be determined with other criteria (recurrence in time of the activity, if the company carries out similar activities in its country of residence...) Therefore, when doing business in other countries different to our tax residence, especially when this is performed physically, we recommend to review if the Tax Office of that country can categorize our entity as a Permanent Establishment and require compliance with their tax obligations. Even if the activities are temporary and/or seasonal. Are you doing business in other countries? Contact us. Our International Department will be glad to assist you.