The Spanish subsidiary as a Permanent Establisment of the Irish parent company
The Supreme Court of Spain has just released his long awaited judgement on the Dell case. In a landmark ruling dated June 20, 2016, the Court has held that the Irish company Dell Products Ltd , which operated in Spain through a subsidiary which formally acted as a mere sales agent, had a permanent establishment ( “PE“) in Spain. Said EP performed extensive features, leading to the attribution to the EP of a significant portion of the revenues of the Irish company for his sales within the Spanish territory.
The Court decision is grounded on the fact that Irish company had in Spain a fixed place of business since it had the actual control of the activities and staff of the Spanish subsidiary. The latter, far from being involved in auxiliary or ancillary activities, was involved in performing the core business of the parent company, such us:
- Promotion, sales and customer acquisition;
- Orders management and reception and control product’s distribution;
- Marketing and advertising in Spain
- Storage and logistics;
- Installation services;
- Accounts receivable management
- Solvency and credit control
Moreover, the Supreme Court considers that the Agent contract existing between the Irish company (“DPI”) and the Spanish subsidiary (“DESA”) also qualifies the latter as an EP of the former under the concept of “dependent agent“. Basically, the Court concludes that the Spanish sub had a substantial degree of dependence from the Parent company based on the following circumstances : a) DESA follow the instructions of DPI , b) DPI must authorize prices and fees, c) DPI accepts or rejects customer’s orders, d) DESA must render periodic reports to DPI, e) DPI has the right to inspect records and premises of DESA, f) DESA needs authorization to purchase products, and g) DPI holds control over Intellectual Property Rights.
In addition, the Court understands that there is organizational unity between both companies, which belong to a group, and are subject to the same decision making power. DESA functions are essential for the marketing and distribution of DELL products in Spain, which constitutes the core business of DPI.
The Supreme Court decision on the Dell case is not good news for several big IT multinational groups which are involved in very similar tax litigation with the Tax Office. To some extent, the Spanish Supreme Court has anticipated the redefinition of the concept of the Permanent Establishment under the BEPS actions 7 in order to prevent the abuse of the commissionaire structures by large multinational groups.