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Tax Connect Flash | Spanish commissionaire structure: Resolution by the Spanish Supreme Court on the existence of a permanent establishment in Spain

The Spanish Supreme Court (SSC) has recently issued on 12 January 2012 a relevant decision regarding Spanish non-resident income tax, determining that a pharmaceutical Swiss entity which holds a Spanish subsidiary, effectively acted and performed its business activity in Spain through a dependent agent, hence constituting under Article 5 of Spain-Switzerland Tax Convention a permanent establishment (PE) in Spain.

The main premise in which the SSC bases its argumentation to reach its judgment grounds on the existence of two binding contracts signed between both entities (a manufacturing, warehousing and selling contract; and a commercial and promoting contract) in virtue of which the Spanish subsidiary was in charge of the manufacturing, storing -in a fixed place rented located in Spain- and selling the pharmaceutical products only to the sole principal (the Swiss entity); and also promoting such products in Spain, i.e., acting as a dependent agent in Spain in order to commercialize them.

In particular, the SSC, by adopting a dynamic view-point of Article 5 of the OECD Model Tax Convention, interprets that, inasmuch as the Spanish entity effectively performs the business activities aforementioned in the installations located in Spain, without bearing the appropriate entrepreneurial risks, and therefore not taking business decisions regarding the manufacturing, selling and promoting of the pharmaceutical products, it acts clearly as a dependent agent. In a nutshell, the nature of the activity performed by the Spanish entity involves the Swiss parent company to a particular extent of its business activities in Spain. Hence, this Court concludes that, to the extent that the business activity is in fact performed by the Swiss entity and not by the Spanish entity, the former had a PE in Spain.

The question of whether a PE exists or not is always a question of facts and circumstances, therefore, as a practical matter, we strongly recommend reviewing case-by-case the particular situation regarding the business activity performed in Spain, so as to not incur in a dependent agent situation or a situation of the main activities of the principal being performed in Spain.


Víctor HernánPartner - CMS Albiñana & Suárez de Lezo

Joaquín de la CuadraAssociate - CMS Albiñana & Suárez de Lezo