The new reality of digital nomads and their tax implications are beginning to be reflected in the rulings issued by the Directorate General for Taxation. An example of this is the binding consultation of 18 January 2022 (V0066-2022). This ruling is not groundbreaking in this area, but it clearly sets out the standards established by the OECD on this type of worker and the analysis of the potential risk of permanent establishment (hereinafter PE) that this entails for their employer companies.
The facts of the case
A UK national was working for a UK-based company in which he performed high-ranking functions. However, he did not have sufficient powers to enter into contracts in the name and on behalf of the employing company.
The worker, who has a house at his disposal in Spain for holiday use, is detained in March 2020 in our country as a result of the Covid-19 pandemic and its consequent closure of borders. After the cessation of the public measures established by the Spanish government, the worker decides unilaterally and for personal reasons to remain in Spain, from where he continues to provide his services to the foreign company, staying for a period of more than 183 days in 2020.
In this context, the Directorate General of Taxes, hereinafter DGT, analyses the potential risk of permanent establishment in the form of a fixed place of business within the meaning of Article 5.1 of the Agreement signed between Spain and the United Kingdom to avoid double taxation.
The answer given by the DGT is structured in two different time scenarios, during the months when the public health measures were in force and after their lifting.
Teleworking in Spain during the COVID-19 health crisis
In this scenario, in which the public health measures were in force, the DGT uses the criteria contained in the OECD report on the impact of COVID-19 on the application of double taxation treaties. In this regard, the fact that an employee works from home as a result of the measures established as a result of COVID-19 is understood to be an eminently exceptional circumstance and, therefore, does not meet the criteria of habitual or permanent residence required to consider that the employer company maintains a PE in that jurisdiction.
Teleworking in Spain after the COVID-19 health crisis
If the worker is still established in Spain after the lifting of the health measures, the specific circumstances of the case must be studied in order to determine whether the employee’s domicile is at the disposal of the company and, consequently, constitutes a PE of the company in Spanish territory.
In the consultation analyzed, the DGT takes the following facts as a basis for denying that the employee’s domicile in Spain in 2020 is a PE:
- The decision to remain in Spain is voluntary and unilateral on the part of the employee.
- The employer does not pay or remunerate the employee in any special way for carrying out duties from his domicile in Spain.
- The employer has at the employee’s disposal a place of work which enables him to carry out his duties in person in the United Kingdom.
All those facts show that the employee’s domicile in Spain is not at the disposal of his employer and that the employer has had no wish for the employee to remain working in Spain. Therefore, the DGT does not see a PE in Spain during the time that the employee remained in our country after the lifting of the exceptional measures derived from COVID-19.
This consultation offers clear guidelines for assessing the risk of PE due to international teleworking. However, the casuistry in this matter is high, so each case must be carefully analyzed according to the factual circumstances surrounding it.
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