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V0655-14 10 March 2014 · SG de Fiscalidad Internacional Criterion in force
IS · beneficios empresariales

Spanish company's Costa Rica profits only taxable in Spain if no permanent establishment there

A Spanish engineering company provides services to Costa Rica's administration from Spain without having a permanent establishment there. The DGT determines that, under the double taxation treaty, Costa Rica cannot withhold taxes on these profits and the company must request a refund in that country.

The question raised

Whether the Spanish-Costa Rican Double Taxation Convention is applicable to your commercial activity in Costa Rica.

The DGT's ruling

According to the Double Taxation Convention between Spain and Costa Rica, business profits may only be taxed in the State of residence, unless the activity is carried out through a permanent establishment in the other State. As there is no permanent establishment in Costa Rica, the 15% withholding applied by the Costa Rican administration is improper. Such withholdings are not deductible as an expense for Corporate Income Tax in Spain and must be claimed via refund in Costa Rica or through a mutual agreement procedure.

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