I. The document discusses the concept of permanent establishment in tax law. II. It provides examples of what constitutes a permanent establishment, such as offices, factories, and natural resource extraction sites. III. It also discusses what is not considered a permanent establishment, such as storage facilities, and addresses issues like tax rates and a company's accounting and registration obligations for their permanent establishment.

1. I. Introduction
II. Concept of Permanent Establishment
III.Examples
IV.Determining the taxable basis of the tax
V. Formal registration and accounting obligations
VI.Responsibility
VII.Tax rates
VIII.Bibliography
Permanent Establishment in Tax
Accounting Tax Legal Audit Law 1

2. Non-Resident Income Tax (IRNR)
The IRNR is a direct tax payable according to the income obtained in
Spanish territory by non-resident individuals or entities.
The regulation of this tax are gathered in the Consolidated Tax Law,
approved by Royal Decree 5/2004 (LIRNR), in force since the 13th
March 2004.
The law is developed by Regulation approved by Royal Decree
1776/2004 (RIRNR), in force since the 6 August 2004.
Permanent Establishment in Tax
Accounting Tax Legal Audit Law 2

3. - A fundamental characteristic of a PE is the absence of a diferent legal status
from the one corresponding to the mother company or head office.
- Branches are always permanent establishments but not the other way around.
- The concept of branch and that PE is, normally, equivalent for tax purposes, but
legally different.
- Each place is a permanent establishment. Eg: Oil Station.
- Is not possible to combine the results of permanent establishment.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 3

4. - In particular, the following are considered to be a PE:
- Place of management, branch offices, factories, workshops, warehouses, shops
or other establishments;
- Mines, oil or gas wells or quarries.
- activities involving agricultural, forestry or any other place for exploration or
extraction of natural resources.
- works involving construction, installation or assembly project. The duration of
which exceeds six months.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 4

5. - The following is Not a permanent establishment:
a) the use of facilities only for storage, display or delivery of goods or
merchandise belonging to the company.
b) The maintenance of goods or merchandise belonging to the company only
for storage, display or delivery;
c) the maintenance of goods or merchandise belonging to the company with
the only purpose of these goods being transformed by another company;
d) The maintenance of a fixed place of business only to purchases of goods or
merchandise or of collecting information for the enterprise;
e) the maintenance of a fixed place of business for advertising, supplying
information, scientific research or for similar activities
Permanent Establishment in Tax Law Accounting Tax Legal Audit 5

6. 1. An Advertising agency that campaigns for other companies based in Spain. PE
2. Sale of a real estate property once the activity of the permanent establishment has concluded.
This is not a PE
3. Warehouse delivery and sale of goods. PE
4. A website is NOT PE according to OECD (Organistation for Economic Co-operation and
Devolopment) according to IEF (Instituto de Estudios Fiscales - Fiscal Studies Institute) in Spain a
website can be an PE because has a continuous activity and creates a minimum trading volume
for a year. PE or not PE A grey area.
5. A Web page hosting SERVER is a PE If the owner of the server is the company. If the server is
owned by another company, in this case there would not be a permanent establishment.
6. A Website hosted on a server in Spain is owned by an American company. It‘s PE
7. A Website available in Spain and hosted on a server that is not in Spain. OECD says it is not PE.
The IEF believes that in this case it is a PE.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 6

7. Would a non-resident person who has leased properties
in Spanish territory be considered to be operating from a
permanent establishment in Spain?
No, given that pursuant to the Spanish tax regulations, the
mere leasing of real estate is not one of the circumstances
conceived to be a permanent establishment.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 7

8. Revenues (+)
a) The income of PE activity.
b) Income from assignment of assets allocated to the PE.
c) Gains or losses on the sale of assets allocated to the PE.
Deductible expenses (-)
The expenses necessary for the activity (as a resident enterprise)
A reasonable proportion of the costs of management and general
administration incurred in the headquarters and corresponding to PE.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 8

9. Expenses not accepted
​
- The payments made to the PE headquarters
for royalties, interest, commissions, technical
assistance or the use of other property or rights.
- The cost of the equity capital of the
headquarters (interest and other financial
charges) affect PE directly or indirectly in Spain.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 9

10. The PE has the same formal obligations, registration
and accounting entities resident in Spain and has to
submit to the same tax model.
The PE must separate accounts for their operations
and assets.
The financial statement´s notes should include
management and administrative expenses charged to
the PE in order to be accepted.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 10

11. Representatives of the company
Representatives of the company are jointly
responsible for the income tax liability of the non
resident.
Companies are required to appoint, before the
end of the reporting period an individual or legal
entity resident in Spain. A breach of the rule is a
serious tax offense, and there is a fixed fine of
2.000 euros.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 11

12. VII. Tax Rates
Tax Rate year Permanent
2012 Establishment
Tax for big
30,00 %
companies
Tax for small
companies with profit
25,00 %
of 300.000 euros (*)
Tax for small
companies with a
profit exceeding 30,00 %
300.000 euros
(*) small companies incomes less than 8 milion euros
Permanent Establishment in Tax Law Accounting Tax Legal Audit 12

13. Tax rate Year 2012-
2013 without a
Type of Revenue permanent
establishment
General Type 24,75 %
Seasonal workers 2%
Workers in diplomatic
8%
missions
Interest and dividends 21 %
Capital gains on sale
21 %
of assets
Permanent Establishment in Tax Law Accounting Tax Legal Audit 13

14. VIII. Bibliography
Its regulation is contained in the Consolidated Tax Law, approved by R.D. Leg
5/2004 (LIRNR), applicable since 13.3.2004.
The law is developed by Regulation approved by Royal Decree 1776/2004
(RIRNR), applicable since 6.8.2004.
http://www.oecd.org Organisation for economic co-operation and development.
http://www.agenciatributaria.es/AEAT.internet/Inicio_es_ES/La_Agencia_Tributaria/
Ca
mpanas/No_residentes/No_residentes.shtml Agencia Tributaria Española
http://www.ief.es/ Instituto de Estudios Fiscales.
Permanent Establishment in Tax Law Accounting Tax Legal Audit 14

15. Questions, Answers, Discussion
Permanent Establishment in Tax Law Accounting Tax Legal Audit 15

16. Contact
Juan Bermudez Claveria
Auditoria Operativa Barcino SL
Edificio Financia
Calle Mallorca 272 6 4
Tel.: +34 93.272.12.42
Email: jbermudez@aobsl.com
www.aobsl.com
Permanent Establishment in Tax Law Accounting Tax Legal Audit 16