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Permanent establishment for remote work during COVID-19

Baker Tilly 8 April, 2022

The recent consultation V0066-22 of the Directorate General of Taxes (DGT) regarding the existence or not of a permanent establishment refers to a remote work of a British employee in Spain during the confinement by Covid-19 who, after those months, decided to stay in the country, exceeding 183 days of permanence during 2020.

The DGT considers the fixed place of business and the dependent agent, fundamental pillars for the determination of the existence or not of a permanent establishment.

In relation to the fixed place of business, in accordance with the provisions of the DGT, during the pandemic and the obligation of many companies to work remotely, the use of the home in Spain by the employee was discontinuous and incidental. In this sense, the discontinuous exercise of a work activity at home by an employee is not to be considered as a fixed place of business.

In addition, to the extent that the employer did contractually provide the employee with a place of business in the United Kingdom and the employee voluntarily chooses to work from home, it is not to be understood as a fixed place of business at the disposal of the company. Moreover, no costs were incurred for accommodation or any additional payment for remote work.

With respect to the dependence on the employer, to the extent that the employee cannot conclude contracts on behalf of the company, and that the activity carried out by the employee cannot be considered habitual if he/she only works from home for an extraordinary event such as COVID and that place of business is not maintained for more than six months, it is not considered a permanent establishment.

Although it is considered that the company would not have a permanent establishment in Spain according to the aforementioned arguments, if the employee's stay in Spain is prolonged beyond the duration of the Covid-19 measures, the employee's stay in Spain could give rise to a risk of permanent establishment in the country.

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