Tax Bulletin February 2012


The current worldwide economic context has prompted multinational groups to embark on corporate restructurings leading them very often to uproot all or part of their operations to other countries, which can in some cases lower their taxable profits in Spain. In these processes, some Spanish companies have been made into low-risk or contract manufacturers, or low-risk distributors or commission agents, and a large slice of the risks associated with manufacturing and distribution activities has been moved to nonresident companies in the same group.


Restructurings of this type basically pose an issue regarding both the value of the transferred assets and business, and the conduct of the transferred businesses after the reorganization (manufacturing cost, distribution margin). Another question that arises is whether, after the reorganization, the nonresident companies that take on the principal risks and functions attached to the operations continue operating through a permanent establishment for tax purposes in Spain.

A Supreme Court Judgment rendered on January 12, 2012 (discussed in this bulletin) examines the case of a nonresident entity that sells products in Spain which are manufactured for it by a low-risk manufacturer, resident in Spain and related to it. In this case, the manufacturer also promotes the sale of those products.

The judgment concluded that just because there is a manufacturer in Spain that manufactures exclusively for the nonresident entity does not mean that the nonresident has a fixed place of business in this country; also, the Spanish entity does not have the authority to enter into contracts in the name of the nonresident. In other words, the starting point is that no permanent establishment exists from either of the two traditional angles: the fixed place of business and the dependent agent that binds the nonresident.

The Supreme Court, however, held that the nonresident has a permanent establishment through the manufacturer/selling agent because both functions are carried out by the same person. This conclusion is reached through a debatable interpretation of the current wording of the OECD Model Convention, which the court applied even though it is not consistent with the interpretation of the tax treaty between the countries concerned, by relying on the principle of “dynamic interpretation” of tax treaties which has recently come into vogue.


    1.1. Nonresident income tax.- Spanish company manufacturing and promoting sales for nonresident entity is permanent establishment (Supreme Court. Judgment of January 12, 2012) 
    1.2. Transfer and stamp tax.-  Transfer tax is payable on transfers of businesses as going concern if objective requirements in Article 108 Securities Market Law are met (Supreme Court. Judgment of December 22, 2011)
    1.3. Collection proceeding.- Stay of tax penalties without needing to post bond in economic-administrative jurisdiction does not automatically continue in judicial review jurisdiction (Supreme Court. Judgments of December 2 and 15, 2011, and January 16, 2012) 
    1.4. Penalty proceeding.- Tax penalty cannot be based only on result of reassessment (Supreme Court. Judgment of January 13, 2012) 
    1.5. Penalty proceeding.- Secondary liability of company directors for penalties extends to tax penalties imposed on companies (Supreme Court. Judgment of January 13, 2012) 
    1.6. Inspection proceeding.- Inspection work on tax group is considered to commence on date initiated at any company in group (National Appellate Court. Judgment of November 17, 2011) 
    1.7. Tax proceeding.- Increased tax liability due to concealed information not compatible with indirect assessment (National Appellate Court. Judgment of November 24, 2011) 
    1.8. Tax proceeding. Time-barred tax obligation for principal debtor means no shifting of liability (National Appellate Court. Judgment of November 18, 2011) 
    2.1. Corporate income tax.- Reinvestment tax credit can be taken for reinvestment of income derived from delivery of properties to shareholders by reason of capital reduction (Directorate-General of Taxes. Ruling V3042-11, of December 23, 2011) 
    2.2. Corporate income tax.- LIFO method in reversal of provisions for share impairment losses (Directorate-General of Taxes. Ruling V3041-11, of December 23, 2011) 
    2.3. Corporate income tax.- Standing contribution to chamber of commerce is deductible even if voluntary (Directorate-General of Taxes. Ruling V3039-11, of December 23, 2011) 
    2.4. Corporate income tax. Tax and accounting treatment of interest-free loans between related parties (Directorate-General of Taxes. Ruling V3038-11, of December 23, 2011) 
    2.5. Corporate income tax and VAT. Different definitions of "line of business" and "independent business unit" (Directorate-General of Taxes. Ruling V3025-11, of December 23, 2011) 
    2.6. Corporate income tax.- Interest-free loans contain subsidized interest reducing tax credit base (Directorate-General of Taxes. Ruling V2980-11, of December 21, 2011) 
    2.7. Corporate income tax.– Special treatment not applicable to merger where absorbing company is holding company with no economic activity, if merger results in deductible goodwill (Directorate-General of Taxes. Ruling V2949-11, of December 19, 2011). 
    2.8. Corporate income tax.- Tax incentives for enterprises of a reduced size can be taken by pure holding companies (Regional Economic-Administrative Tribunals of Valencia (decision of November 22, 2011) and Galicia (decision of December 15, 2011) 
    2.9. VAT.- Time period for amending VAT taxable amount in insolvency proceedings is cut by half where insolvency is conducted as “abbreviated” proceeding (Central Economic-Administrative Tribunal. Decisions of December 13, 2011 and of January 17, 2012) 
    2.10. Wealth tax.- No wealth tax on shares in nonresident company owning properties in Spain (Directorate-General of Taxes. Ruling V 2982-11, of December 21, 2011) 
    2.11. Tax proceeding. Principle of reclassification is a power of the authorities not to be used by taxpayers to change their classification of their own contracts (Central Economic-Administrative Tribunal. Decision of December 1, 2011) 12
    2.12. Economic-Administrative Proceeding.- Special appeals for a definitive ruling on a point of law only have forward-looking (ex nunc) effects, and therefore cannot give cause for a review of final decisions (Central Economic-Administrative Tribunal. Ruling of December 13, 2011) 
    3.1. Reform of the labor market. Tax measures 
    3.2. Dissolution or mandatory capital reductions. Computation of impairment losses in equity 
    3.3. “Courtesy days” for electronic notifications 
    3.4. Petition for ruling on whether documentation obligations and penalty regime for controlled transactions are constitutional 
    3.5. Notification of the details of the recipient to the payer of salary income 
  • 4. OTHER NEWS 
    4.1. Opinion of the European Economic and Social Committee on the “Proposal for a Council directive on a common consolidated corporate tax base in the European Union  


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