rivista di diritto tributario internazionale international tax law review

I.M. Tejeri:..o Lope;::: Tax regime far non-residents with pennanent establishme1ll
4) We emphasized earlier that the income of the permanent establishment
has to be calculated using the rules which applv to liable residents.
This is a requirement of the principle of non-discrimination already
looked at. Well, there is a type of cost the Convention recognises
expressly for permanent establishments. Art. 7.3 makes reference to management
and generaI administration expenses defrayed for the permanent
establishment's objectives, and they compri se both costs sustained
in Spain and those met outside of our country. Both the Convention and
the Spanish regulatios demand that said expenses be reasonable, adding
to this some other requisites of a formaI nature, such as separate inscription
of the profit and loss account, and constancy, through annotations
or memoranda, of accounts, criteria and section models.
There are two issues to look at in terrns of management and adrninistration
costs. The first one consists in identif.ying which concepts farm
part of the generaI definition. The Spanish tax administration admits costs
\vith a wide criterion, provided they relate to the permanent establishment's
activity. So, for instance, it accepted an insurance company's distribution
of reinsurance costs among various agencies, when these related
to insurance risks (DGI response 16/3.82) or, again, that a bank branch
deducted amounts paid to its parent company to obtain funds to al-
106 locate to the Spanish market, provided that the type applied is analogous
to that normally applicable in the interbank market (DGI response
22/7/81), or, finally, that a permanent establishment deducted as a cost,
the parent company's charge for temporal use of an asset belonging to
the latter (DGI response 6/6.91).
The latter question concerns fixing criteria to allocate management
and administration costs taking into account that the majority of these
are indivisible. Art. 30.l.b of the law on company tax states that the permanent
establishment is allocated the proportional part of the costs of
factors utilised. Due to the frequent complications arising from the application
of this, it is accepted that the costs be divided in proportion to
one of the following parameters: turnover, direct costs and expenses, medium
rotation of those elernents of fixed assets undergoing economie utilization
or medium total rotation of the input employed.
5) Among the incomes of the permanent establishment there are capitaI
gains deriving from its activity. There is no provision which prohibits
or limits this matter. What we must ask is whether for the ltalian
company based in Spain, art. 48.2 of the company tax law is applicable.
According to this law there is an alteration in capitaI (and therefore there
can be capitaI gains) in the case of re-exportation of factors acquired,
to be utilised in the activities carri ed out by a permanent establishment.
There is no doubt about the application of this precept when re-ex-
RIVISTA DI DlRmO TRIBUTARIO INTERNAZIONALE 1/1999