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V1148-18 7 May 2018 · SG de Impuestos sobre el Consumo Criterion in force
IVA · establecimiento permanente

Classification of toll manufacturing and criteria for the existence of a permanent establishment

An Irish company has requested clarification on whether its toll manufacturing contract with a Spanish entity constitutes a permanent establishment and whether the transaction is classified as a supply of goods or a provision of services. The DGT has determined that, as the client provides the majority of the raw materials, the operation is classified as a provision of services.

The question raised

It is questioned whether the Irish entity should be considered to have a permanent establishment in the territory of tax application; whether the toll manufacturing operations carried out by the established entity should be classified as the provision of services or the supply of goods, and the place of performance of said operations.

The DGT's ruling

Manufacturing under tolling arrangements constitutes a provision of services when the client provides all materials or when the materials provided by the entrepreneur are insignificant. In this case, as the applicant provides the majority of the raw materials, the operation is a provision of services. Such services shall only be subject to tax if the Irish entity has a permanent establishment in Spain that is the effective recipient of the service.

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