Branches of non-EU entities will be taxed upon dissolution

Managing the presence of foreign entities in Spanish territory entails specific tax obligations that must be met at every stage of their activity. The Dirección General de Tributos (DGT) has specified the applicable tax treatment when a branch of an entity headquartered and domiciled outside the European Union decides to cease its operations in Spain.

What the DGT has ruled

The advisory body has determined that branches of non-EU entities are taxed under the corporate operations modality of the Transfer Tax and Documented Legal Acts Tax (ITPAJD) in relation to the portion of capital allocated to their operations in Spain. Consequently, the dissolution of said branch implies the cessation of the allocation of that capital and is subject to the tax under the concept of dissolution.

However, the ruling establishes an important operational exception: if the dissolution operation does not involve the return of assets or rights to the partners of the parent entity, no tax settlement will occur under this concept.

What this means for you

If your company operates in Spain through a branch of an entity headquartered outside the European Union, you must take into account that the closure of such a structure is not a neutral operation from the perspective of the ITPAJD. Current regulations, based on the TRLITPAJD and the RITPAJD, link dissolution to the cessation of the allocation of the capital that the branch used for its activity in Spanish territory.

This scenario directly affects the planning for the exit of non-EU entities from the Spanish market, as the nature of the dissolution will determine the obligation to settle the tax on corporate operations.

What should be done

In the event of a dissolution process of a non-EU branch, it is necessary to perform a technical analysis of the operation to determine whether there is an effective return of assets or rights to the partners. This analysis will allow for the definition of whether the operation generates an obligation to settle the ITPAJD or if, conversely, the absence of an asset return exempts such payment. It is recommended to assess each particular situation to ensure compliance with current tax regulations.