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| Abelardo Delgado Pacheco |
On June 20 2016, the Spanish Supreme Court handed down an
important judgment (Supreme Court judgment 2861/2016) on what
is referred to as the Dell case.
In its judgment, the Supreme Court upheld the substantial
elements of the judgment handed down on June 8 2015 by the
National Appellate Court on a case in which a permanent
establishment (PE) was deemed to exist as a result of
activities pursued in Spain by an entity with tax resident
status in Ireland. These activities consisted mainly of
promoting sales and soliciting customers, processing orders,
marketing and advertising, storage and logistics services,
installation services, collection management and solvency and
creditworthiness checks.
The Spanish tax authorities held that there was a PE in
Spain due to the existence of a fixed place of business and to
the presence in Spain of a dependent agent, in accordance with
Article 5 of the Spain-Ireland tax treaty. The appellant had
denied that it had a fixed place of business because the
activities supposedly pursued in Spain were carried on by the
group subsidiary resident in Spain. It had also rejected the
idea that the subsidiary had furnished the Irish entity with
premises or facilities located in Spain, stating that they
belonged to the Spanish entity and were used by it for its own
activity.
The Supreme Court gave its own particular interpretation of
the commentaries on Article 5 of the OECD Model Convention,
when it took the view that the premises can be furnished to a
non-resident entity, who uses them for its activity even if it
lacks a formal title for doing so. On this basis, it agreed
that the Spanish subsidiary's activity for the account of the
Irish entity is sufficient to deem facilities to have been
furnished by the former to the latter.
The Supreme Court emphasised that, in today's world, tax
treaties must be interpreted in the light of the commercial
globalisation which, in turn, requires an interpretation of
applicable legislation consistent with this new reality, having
regard to the substance of the new business activity models.
The Supreme Court therefore said the facts deemed to have been
proven by the instance court and the relative confusion
entailed by this view between the activities of the subsidiary
itself and those of the non-resident group company.
The position taken in connection with the notion of a
dependent agent is even clearer and more innovative. The
judgments reinterpreted the concept of an agent acting for the
account of an enterprise, with powers of attorney to contract
in the name and for the account of the said enterprise. Despite
the wording of Article 5 of the Spain-Ireland tax treaty and of
domestic Spanish legislation, the Supreme Court upheld the
position taken by the tax authorities and affirmed that
representation does not have to be direct. Instead, it is
sufficient for the agent to be able to execute agreements under
which the economic consequences are binding on the non-resident
entity, even if the commission agent acts in its own name
vis-à-vis third parties.
The Supreme Court consciously distanced itself from the
position taken by other foreign courts, in particular, by the
French Council of State in the Zimmer case of March 31
2010. If the commission agent is economically dependent and the
internal relationships between the principal and the commission
agent are binding on the principal, the commission agent is, in
the opinion of the Spanish courts, actually acting in the name
of its principal.
In this context, the Supreme Court also takes the view that
international taxation should seek the equitable allocation of
business profits among the states, in a globalised market on
which multinational companies attempt to transfer the profits
obtained in other states to a state with lower taxation. For
this very reason, a strict, literal or static interpretation
can no longer be given to tax treaties.
Thus, in its judgment, the Spanish Supreme Court followed
the course it initiated with the judgments of January 12 2012
and June 18 2014, sharing the view taken by the tax authorities
in favour of a flexible interpretation of Article 5 of the tax
treaties and a broad use of the PE provision in Spain, as well
as denying treatment as ancillary or preparatory activities to
the complex presence in Spain of multinational groups through
commission, sales promotion or toll manufacturing
structures.
Lastly, in all such cases, the debate on how much income is
to be allocated to the presumed PE has become secondary, given
that the starting point was a situation in which the
non-resident entity denied that it had a PE. The tax
authorities determined the tax base on the sales made in Spain
through the resident subsidiary. We are already well aware of
the difficulties inherent in the functional analysis of an
establishment deemed to exist by virtue of the tasks carried
out by a resident subsidiary. The latest efforts of the OECD in
the context of Action 7 of the BEPS Project highlight these
difficulties most notably, especially when avoiding confusion
between the compensation of the PE and that of the resident
subsidiary itself.
Abelardo Delgado Pacheco (abelardo.delgado@garrigues.com),
Madrid
Garrigues
Website: www.garrigues.com