Recent Spanish Case Law on Permanent Establishments (Corporate Tax and VAT)
Spanish courts have significantly refined the concept of permanent establishment (PE) in recent years, and the criteria differ sharply between corporate income tax and VAT. This article reviews the Supreme Court's substantialist doctrine on subsidiaries and commission agents, the CJEU's increasingly restrictive VAT case law, and the emerging risk posed by cross-border remote working, together with practical takeaways for multinational groups operating in Spain.
Recent Spanish Case Law on Permanent Establishments (Corporate Tax and VAT)
Spanish courts have significantly refined the concept of permanent establishment (PE) in recent years, and the criteria differ sharply between corporate income tax and VAT. This article reviews the Supreme Court's substantialist doctrine on subsidiaries and commission agents, the CJEU's increasingly restrictive VAT case law, and the emerging risk posed by cross-border remote working, together with practical takeaways for multinational groups operating in Spain.
One concept, two legal systems
The starting point of the analysis is a methodological one: the criteria used to identify a permanent establishment (PE) in direct taxation cannot be transposed to VAT, and vice versa. Direct taxation relies on Article 13.1(a) TRLIRNR and Article 5 of the applicable Double Taxation Convention, interpreted dynamically through the OECD Commentary. VAT relies on Article 69.3.2 of the Spanish VAT Act and Article 11 of EU Implementing Regulation 282/2011, an autonomous EU-law concept where the CJEU, not the OECD Model, has the final word. Much of the recent litigation stems from a failure to observe this distinction.
Direct taxation: the classic trilogy
Three Supreme Court rulings form the backbone of the Spanish substantialist doctrine: Roche (12 January 2012), which held that a subsidiary manufacturing under a "maquila" arrangement and promoting sales constitutes a PE of the parent; Borax (18 June 2014), which confirmed that premises used de facto for the non-resident's business amount to a PE even where individual functions look ancillary; and Dell (20 June 2016), which extended the doctrine to commission agents acting in their own name, treating the subsidiary's resources as a single "complex operational structure" serving the parent. The Supreme Court deliberately departed from the French Zimmer case law and anticipated BEPS Action 7; this remains the Tax Inspectorate's standard approach to commission-agent and maquila structures.
VAT: a more volatile picture
The Supreme Court's VAT case law has been less consistent. A 2018 ruling preserved the subsidiary's independent legal personality where it contracted with third parties in its own name. Its 2020 ruling (No. 1500/2020) reversed course, finding a PE where the subsidiary's means of production are entirely at the parent's disposal, which directs manufacturing, distribution and pricing on a cost-plus basis. The risk scenario to watch is contract manufacturing or distribution remunerated at cost under the parent's effective control.
The CJEU's counterpoint
European case law has moved in a markedly more restrictive direction: Dong Yang (2020) held that a subsidiary's mere existence does not create a presumption of the parent's economic presence; Titanium (2021) ruled that a leased property without own staff is not a PE; Berlin Chemie (2022) rejected using the service-providing subsidiary's own resources to establish the recipient's PE; Cabot Plastics (2023) confirmed that an exclusive contract manufacturer does not become its principal's PE; and Adient (2024) closed the loop, holding that neither group affiliation, a service contract, nor logistical involvement automatically create economic participation. This divergence between the expansive Spanish doctrine and the CJEU's restrictive line is now the strongest line of defence in VAT PE adjustments.
TEAC 2025 and the emerging front: remote working
In two 2025 rulings, the Spanish TEAC refused VAT refunds to a non-resident pharmaceutical company on the grounds that its Spanish distribution subsidiary, bearing all commercial risk with a single client, constituted a dependent-agent PE — an outcome closer to the older DFDS (1997) case law than to Berlin Chemie or Adient, and arguably open to appeal. Separately, remote working is becoming the next battleground: per DGT guideline V0066-22 and the OECD's November 2025 update to the Commentary on Article 5, a home office only creates a fixed place of business where the company has power of disposal over it, the activity is habitual, the company exercises control, and there is a genuine business reason for the arrangement — with a 50% working-time safe harbour. Contractual documentation of remote-working policy is currently the first line of defence.
Conclusions and recommendation
Three conclusions emerge: (i) the Supreme Court's substantialist doctrine in direct taxation remains fully in force and is applied systematically to post-BEPS structures; (ii) in VAT, the gap between Spain's broad interpretation and the CJEU's restrictive case law is now the principal line of defence; and (iii) remote working is the new frontier under Article 5, with the OECD's November 2025 Commentary set to become the interpretative benchmark. The practical recommendation is to audit the actual functions and risks of Spanish subsidiaries (not merely the contracts in place), document international remote-working policies, and, in VAT adjustments concerning permanent establishment, base the defence on CJEU case law.
Short presentation of Alex Martínez-Comín and Martínez-Comín
Alex Martínez-Comín is managing partner at JPA in Barcelona & Madrid. He combines extensive expertise in tax, corporate and business law with a strong strategic focus, advising entrepreneurs, family offices, multinational groups, and high-net-worth individuals on complex domestic and cross-border matters.
Website : https://www.jpabarcelona.com
