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A Spanish holding company (ETVE) has enquired whether income from its permanent establishment (PE) in Panama, derived from international trading, can benefit from the exemption under Article 22 of the Corporate Income Tax Law. The Directorate General of Taxes (DGT) has ruled that this is possible, provided that the requirements for business activity and compliance with the double taxation treaty are satisfied.
Question posed: Whether the income obtained by the permanent establishment in Panama, deriving from the performance of an international "trading" activity with group entities resident in countries with which Spain has in force double taxation treaties, may benefit from the exemption in Spain provided for in Article 22 of the consolidated text of the Corporate Income Tax Law.
The income of the PE in Panama may be exempt if it derives from business activities abroad and represents more than 85% of its income. Likewise, it must be ensured that the PE is subject to a tax of an identical or analogous nature and that a double taxation treaty with an exchange of information clause is applicable. For periods starting from 2015, the foreign tax must have a nominal rate of at least 10 percent.
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