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V2407-14 11 September 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · retención

No Corporation Tax withholding required for brand and know-how payments if part of an economic activity

A company sought clarification on whether it should apply Corporation Tax withholding to payments made to a franchisor for the use of a brand and know-how. The DGT ruled that if these payments derive from an economic activity, they are not subject to withholding.

The question raised

1. Whether payments made for the direct and indirect use of the franchise trademark and the transfer of know-how, both paid to entity B, are subject to withholding or payment on account and, if applicable, the rate of withholding to be applied.

The DGT's ruling

Income subject to Corporate Income Tax withholding consists of those considered returns on movable capital under Personal Income Tax, such as industrial property that does not affect economic activities. If the franchisor transfers the trademark and know-how within the framework of an economic activity, such income is not subject to withholding. Therefore, withholding is not appropriate for payments for the transfer of use of the trademark and know-how.

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