Spanish ruling on telework due to Covid-19 and permanent establishment

The Spanish Directorate General of Taxes (SGDT) published a binding preliminary ruling on January 18, 2022 (V0066-22), which for the first time contains an explicit reference to permanent establishment matters, following the updated OECD guidance on tax treaties and their impact the Covid-19 -Pandemic. This judgment is important because of the soft law nature of the OECD guidelines and the uncertainty of the Spanish tax authorities’ position on the matter.

To put this in context, due to the Covid-19 pandemic, the OECD’s guidance, published on April 3, 2020, included guidance on how to determine the residency of taxpayers when they were required to remain in a territory due to unseen and involuntary circumstances such as the travel ban . The guidelines also stipulated that states had to implement the necessary mechanisms not to calculate the days of stay in the territory as a result of Covid-19 and not to change the tax residence that the person would have had had the pandemic not occurred.

Despite the above guidance, on June 17, 2020, the SGDT published a binding decision regarding a resident of Lebanon who came and stayed in Spain due to Covid-19 and restrictions on international mobility. The SGDT, in disregard of the OECD guidance, concluded that the fact that they have resided in Spain for more than 183 days is sufficient to determine that the Lebanese resident will be considered Spain tax resident for the 2020 tax year , even if it were due to Covid-19 restrictions.

In this situation no tie-breaker rules could be applied as Spain does not have a double tax treaty with Lebanon and Lebanon is also blacklisted for Spanish purposes.

However, in this fuzzy context, the SGDT subsequently published new binding decisions in April and August 2021.

The first of these judgments relates to the tax residency of a Moroccan citizen “trapped” as a result of the travel ban in Spain, and its conclusion differs from the earlier June 17, 2020 decision discussed above.

Referring to the updated version of the OECD Guidance published in January 2021, this ruling opens the door to the need to assess all circumstances to determine tax residence and not just the number of days spent in Spain. The SGDT also expresses doubts about the possible Spanish “gain” if the tie-breaker rules of the double taxation treaty were applied.

According to SGDT, the main difference between the two cases is that Morocco is a double taxation treaty and Lebanon is not, and therefore the interpretation of tax residence is different, as Article 4 of the double taxation treaty may or may not be applied in the scenarios where Spain intends to attract tax residency.

Against this background, the Spanish tax experts were interested in whether the Spanish tax authorities could also disregard the OECD guideline on the existence of a permanent establishment because of the Covid 19 pandemic for employees who work as telecommuters in Spain as a result of the lockdown and the travel ban.

Judgment of January 2022

The facts in relation to this judgment are as follows: An English employee (UK resident) working for a UK company held a managerial role and his roles were neither preparatory nor supportive in nature – generating business for the group in Europe and membership of the project funding team. However, he was not authorized to enter into contracts and sign for and on behalf of the British company.

The employee frequently traveled to Spain where he has a home and on one of those visits he was unable to leave Spain due to Covid-19 protection restrictions. For this reason he continued to work for the British company from his home in Spain.

After the lockdown and travel ban were lifted, the employee decided unilaterally and for personal reasons to remain in Spain. As the employee stayed in Spain for more than 183 days in the 2020 calendar year, he became a Spanish tax resident.

The employee then asked the British company to continue working from home in Spain, but the company rejected his request. As a result of this refusal, the employee resigned from the British company.

The British company did not cover any costs related to the worker’s accommodation in Spain and did not provide additional remuneration for his work from home in Spain. After the termination, the British company did not employ any more workers in Spain.


In this context, the UK company asked the SGDT to confirm that in 2020 it is deemed that no Spanish permanent establishment exists in Spain through the application of the permanent place of business clause or the dependent agent clause, as explained below.

content of the judgement

Fixed place of business—The SGDT pursuant to Article 5 of the Double Taxation Treaty signed between Spain and the United Kingdom, the Comments on the OECD Model Tax Convention and in particular the OECD Secretariat Analysis on Tax Treaties and the Impact of the Covid-19 Crisis, issued on April 3, 2020 ( and subsequently updated on January 21, 2021) distinguishes between the following two possibilities:

During Covid-19 lockdown and travel ban: The SGDT specifically refers to the updated OECD guidance and confirms that given that the employee was working remotely due to an extraordinary event, the period of lockdown and travel ban would not create a permanent establishment for the UK company because there is not a sufficient measure of permanence or continuity. In this sense, the SGDT expressly recognizes that “it is clear that the use of staff housing in Spain is discontinuous and random”.

After Covid-19 lockdown and travel ban: Considering that the stay in Spain continued after the extraordinary measures of Covid-19, the SGDT also analyzes whether the worker’s home office is available to the British company.

In this regard, the SGDT states that in order for a place where the company’s activity is carried out to be considered a permanent establishment, it must have a certain degree of permanence and be available to the company.

With this in mind, the SGDT confirms that the worker’s home office was not available to the UK company and did not have sufficient durability because:

  • It was a personal choice for the worker to move to Spain and not a requirement from the UK company, even if the travel ban was not imposed.
  • The British company has an office in the UK which could have been used by the employee instead of working from home in Spain. Therefore this was not a requirement of the British company.
  • The UK company had not borne any costs incurred as a result of the worker’s stay in Spain and no additional allowance had been paid to the worker.

Dependent Agent—Regarding the existence of a dependent representative, in line with the OECD guidelines, the SGDT considered that the activity of a representative cannot be considered ordinary if, due to an imposed public health measure, the person is exceptionally away from home in another Legal space works by a government as a result of the Covid-19 outbreak.

If the employee continues to work from that jurisdiction after the Covid-19 lockdown and travel ban, the agent’s specific case should be analyzed. According to the SGDT and the information contained in the judgment, the activity of this employee does not imply the existence of a dependent agent in Spain. However, the judgment expressly recognizes that these are facts whose evidence has not been examined by the SGDT.


This is the first judgment issued by the SGDT that includes an explicit reference to the OECD Guidance on Tax Treaties and the Impact of the Covid-19 Pandemic, which were not binding on governments, creating an element of uncertainty as to the criteria followed from the SGDT.

Even though exposure to workplaces is a casuistic matter that should be analyzed on a case-by-case basis, considering all the surrounding facts and circumstances it seems clear that the SGDT will follow the guidance issued by the OECD and will recognize those redundant workers who telecommute from too Working from home due to the Covid-19 situation will not create exposure to a permanent establishment in Spain.

However, these conclusions cannot be extrapolated to every employee working from home in Spain for a non-resident company in the wake of the Covid-19 pandemic. The key point would be, what if the worker continues to work indefinitely from Spain but is not made redundant? Would the SGDT criteria remain unchanged? The binding decision helps during Covid restrictions but does not resolve uncertainty about post-Covid-19 scenarios.

Therefore, it should be assessed on a case-by-case basis whether a transferred worker working from home in Spain following the Covid-19 lockdown and travel ban could constitute a permanent establishment for the foreign company, on the basis of the possible existence of a permanent establishment or the Activity of the employee as a dependent representative in Spain.

This article does not necessarily represent the opinion of the Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Information about the author

Javier Blázquez is a Senior Associate and Pablo Fernández is an Associate at Baker McKenzie Spain.

The authors can be contacted at: [email protected]; [email protected]

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