An issue that has been reconsidered is the definition of a permanent establishment, as “a fixed place of work through which a company carries out all or part of its activity” (definition established in article 5.1 of the OECD Model Convention), relating this with the figure of teleworking and its current implementation.
The General Directorate of Taxes has recently issued a statement in response to Binding Consultation V0066-22 in which it is raised whether a company resident in the United Kingdom with an employee who had moved to Spain and had been retained in this jurisdiction during the months of confinement As a result of the pandemic, it could constitute a permanent establishment for the British company in Spain, all in accordance with the definition of permanent establishment contained in the Agreement between the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Spain to avoid Double Taxation (identical to the definition of the OECD Model Convention).
In this regard, the General Directorate of Taxes establishes in its Binding consultation V0066-22, dated January 18, answers that to meet the conditions of permanent establishment, the following requirements must be met:
- The existence of a place of business.
- Let this place of business be fixed.
- And that the company's activity or part of it is carried out there.
A priori, and in accordance with the definition and requirements mentioned, it could be presumed that the employee who teleworks continuously in another jurisdiction can constitute a permanent establishment for the company. However, the General Directorate of Taxes qualifies the definition by adding that the workplace must be “at the disposal of the company.”
In the consultation you can see how the General Directorate of Taxes differentiates two situations of the employee:
- When I was teleworking due to the pandemic.
- When after the pandemic, he decided to continue his work from his residence in Spain.
In the first of the situations, the aforementioned response concludes that the requirements to be considered a permanent establishment are not met, since the continuity of teleworking cannot be attributed to the will of society or the worker but to the incidental circumstances that caused the confinement due to the COVID-19 pandemic.
In the second case, however, the employee decides to continue his work from Spain despite having ended the confinement period that prevented him from returning to the company's country of residence. In this case, in which, in principle, the conditions of permanent establishment indicated above are met, it would be necessary to consider the nuance of whether the workplace is “at the disposal of the company” as added by the General Directorate of Taxes.
Well, the DGT concludes that, as long as the British company does not cover any expenses or remunerate the employee in a special way for the use of their home to carry out their work, it could not be considered that the home was at the disposal of the entity. and that, therefore, could not be considered a fixed workplace where the activity is carried out.
In short, the home of the employee who teleworked in Spain during the months of confinement due to the pandemic and the subsequent months does not represent a permanent establishment for the company.