Spain updates VAT permanent establishment rules

Wed 16th May 2012

Non-resident companies selling into Spain face a complex VAT regime if there are holding stocks locally.   If they are selling to local VAT registered companies, they may not be able to Spanish VAT register, and so not easily recover input VAT on costs such as storage.

Earlier this year, there has been a new Spanish court ruling on a Swiss chemicals company, and this helps clarify the position.  The Swiss company was holding stocks in Spain for onward sale to its local customers.  The stocks were being held on a VAT consignment stock basis, which means the Swiss company could register as a non-resident VAT payer.  It did not need to form a local company or branch, and so avoid expensive compliance and corporation tax obligations.

The Spanish court challenged this position since the Swiss company also had a Spanish subsidiary. This provided some local sales support for the Swiss company.  Since it had only be registered as a branch, it therefore was paying a reduced corporate tax rate.

The Spanish Supreme Court has ruled that the local subsidiary is in effect giving the Swiss company a permanent establishment.  This will change the terms of the non-resident VAT registration and the Spanish VAT compliance obligations.



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