Does a Spanish branch constitute a permanent establishment?
A US management company, Gestora US, manages an investment fund domiciled in the Cayman Islands and its subsidiaries. The Group, which Gestora US is a part of, plans to expand its presence in Spain. A French subsidiary of the Group intends to open a Spanish branch under a sub-management agreement with Gestora US.
In response to the query on whether the activities of the Spanish branch constitute a permanent establishment in Spain for any of the funds concerning the non-resident income tax, the Directorate General of Taxes (Binding Consultation 2934-23) considers the following:
For a permanent establishment to exist, it is necessary for the non-resident entity to conduct an economic activity in Spain through a fixed place of business or an authorized agent. Although the Funds and their manager are not subject to the Directive on investment fund managers, the management structure indicates that the management and investment activities of the funds, along with other complementary activities, are carried out by Gestora US and its associated entities. The branch in Spain of the French entity would act as part of this structure.
The DGT concludes that the Funds do not conduct economic activity in Spain, as the management activities are carried out by entities other than the funds themselves. The Spanish branch of the French entity does not constitute a permanent establishment for the funds, as they do not conduct economic activity in Spain through a fixed place of business or an authorized agent.
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