Working from home and its tax implications in Spain – Ruling from the Spanish Directorate of Taxes dated 18 January 2022

Teleworking abroad can constitute a permanent establishment in the country in question and, consequently, entail the obligation to pay certain taxes on the employer's profits in that country. In general terms, a permanent establishment is deemed to exist where there is:

• a fixed place of business through which the business of a company is wholly or partly carried on; or
• a dependent agent who has, and habitually exercises an authority to conclude contracts in the name of a company or habitually plays the main role in the conclusion of contracts routinely executed without material modification by the company.

An employee working remotely may, therefore, create a permanent establishment for his or her employer if the above criteria are met. In its binding ruling dated 18 January 2022 (reference number V066-22), the Spanish General Directorate of Taxes offers some useful elements of judgment for this analysis.

The ruling reviews the case of an employee of a UK-resident entity. This employee was present on Spanish territory during the lockdown months in 2020. However, such employee unilaterally decided to extend his stay in Spain and work remotely from Spain when lockdown ended. The ruling refers to the fact that the UK company did not defray any of the employee's expenses connected to his remote working. Additionally, when this employee ended his employment relationship with the company, the company did not take any action aimed at replacing him and hiring another employee to relocate to Spain.

The General Directorate of Taxes first considers whether the presence of the teleworker could constitute a permanent establishment, as it would amount to "a fixed place of business through which a company carries out all or part of its activity". Then, the ruling also reviews whether the employee could be deemed a "dependent agent" and therefore create a permanent establishment for the employer.

As regards the lockdown period, the ruling refers to the non-binding recommendations of the OECD Secretariat report "OECD Secretariat Analysis of Tax Treaties and the Impact of the Covid-19 Crisis", updated on January 21, 2021 ( “Updated guidance on tax treaties and the impact of the COVID-19 pandemic”), and concludes that there can be no permanent establishment – fixed place of business or dependent agent – in this case, since the presence of the employee is not sufficiently "permanent" nor "regular". For the ruling, therefore, the broad idea is that, if there was no permanent establishment prior to the lockdown measures imposed to prevent the spread of the COVID 19 virus, it is "difficult" for that conclusion to change due to the imposition of restrictions on mobility.

In relation to the months after lockdown, the ruling reviews the specific circumstances of the case and concludes that the employee's home does not amount to a fixed place of business in which the company carries out its activity, since such home is not "available" to the company given that

• the permanence in Spain is due to a unilateral decision of the worker;
• the company has not imposed on the employee to work remotely; in fact, the company offered the employee to work on site and in person in the United Kingdom; and
• the company does not pay any expenses or remunerate this employee in any special way for the use of their home as a workplace.

The ruling also determines that, given the employee's functions and responsibilities, such employee cannot be considered a "dependent agent" and give rise to a permanent establishment for his employer as a result.

The ruling, therefore, provide a general statement which can apply to cases of remote working directly associated with mobility restrictions due for health or public policy, while also underlining the importance of a detailed and case-by-case analysis of these cross-border situations.