The binding ruling V0066-18 of the Spanish Tax Office analyzes the evidences which determine that a server located in Spain is a “Permanent Establishment” (PE), based on OECD rules.

In this case, a trading company resident in Ireland is planning to install a server in Spain in order to be close to its market. The server will be controlled from Ireland, and there will not be any employees in Spain. 

What is a PE?

Under the OECD rules, a place where computer equipment -such as a server- is located may in certain circumstances constitute a PE. However, it requires that the functions performed at that place go beyond preparatory or auxiliary activities.

The Spanish Tax Office, based on OECD Guidelines, establishes that what determines if a server is a PE or not, depends upon how core that server is to the taxpayer’s business and specific to the taxpayer’s attributes.

Therefore, the mere presence of a server in a jurisdiction should not be enough to create a taxable presence. Nevertheless, determinations must be done on a case by case basis.

What is new?

The binding ruling mentioned above follows the OECD rules and hence brings safety, because it clarifies the taxation of technological developments.

This is quite a current topic, so we will keep an eye on it.