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V0110-16 15 January 2016 · SG de Fiscalidad Internacional Criterion in force
IRPF · socios profesionales

Income for displaced partners may qualify as business profits exempt from withholding if foreign residency is proven

A taxpayer queried how to classify and withhold payments made to partners relocated to Chile and Colombia to compensate for expenses and salary differences. The DGT indicates that if they remain residents in Spain, these are earnings from economic activities subject to withholding; however, if they prove foreign residency, they may be treated as business profits not taxable in Spain.

The question raised

Question raised: Classification of payments to partners resident in Colombia and Chile as ancillary remuneration and whether there is an obligation to perform withholding on the amounts paid to displaced non-resident partners, particularly in the first months of relocation, when the circumstances determining the modification of tax residence have not yet arisen and a certificate of residence abroad cannot be provided.

The DGT's ruling

As long as the partners do not prove their tax residence in Colombia or Chile, they are presumed to be residents in Spain and their income is considered income from economic activities subject to withholding. Once they prove their residence through a certificate to apply the Convention, the income may be classified as business profits. If the partners do not have a permanent establishment in Spain, such income cannot be subject to taxation in Spain and there will be no obligation to withhold.

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