International Tax: Global Expansion Without Tax Risk

International tax in Spain governs the cross-border tax obligations of Spanish-resident entities and individuals operating abroad, as well as foreign entities with Spanish-source income, within a framework shaped by Spain's network of over 90 double taxation treaties (based on the OECD Model), EU Directives ATAD I and II (transposed into the Corporate Income Tax Act, LIS), and the OECD's BEPS package — including Pillar Two's 15% global minimum rate (in force in Spain from 2024 via Directive 2022/2523). Key risk areas include inadvertent permanent establishments under Art. 5 of applicable treaties, controlled foreign company rules (Art. 100 LIS), and mandatory disclosure of cross-border arrangements under DAC6 (Royal Decree-Law 3/2020).

International taxation requires an integrated perspective that combines knowledge of Spanish law with that of destination countries. Our team works in close coordination with local advisers across key jurisdictions to ensure that every structure is robust, efficient, and defensible before any tax authority.

Why Poorly Managed International Tax Can Undermine Your Global Expansion

A Spanish company that expands internationally without tax planning can end up paying tax twice on the same profits: once in the destination country and again in Spain. But double taxation is only one of the risks. An employee sent abroad for six months can inadvertently create a permanent establishment that generates tax obligations in that country for the entire company’s activity. Collecting dividends from a Latin American subsidiary without applying the correct treaty can attract a 30% withholding that was fully avoidable. CFC rules allow the AEAT to tax profits of subsidiaries in low-tax jurisdictions even when they have not been distributed. And BEPS reporting requires genuine economic substance in each jurisdiction, otherwise the entire structure is exposed to reclassification.

Our International Tax Structure Design Process

Our international tax specialists analyse every group structure from the perspective of all relevant territories. We identify applicable double taxation treaties between Spain and operating countries — Spain has over 90 treaties in force — and apply each clause to reduce withholding on dividends, interest, and royalties. We design economic substance policies for holding and intermediate structures that withstand post-BEPS scrutiny. We prepare Country-by-Country Reports, Master Files, and DAC6 filings where required. We act as the single coordinator with local advisers in each jurisdiction, preventing the client from managing multiple counterparts with partial and inconsistent views.

Regulatory Framework: BEPS, ATAD, and Pillar Two

The international regulatory framework is shaped by OECD Model-based Double Taxation Treaties, EU Directives ATAD I and II transposed into Spanish law through the Corporate Income Tax Act, and the OECD’s fifteen-action BEPS package. Pillar Two establishes a global minimum rate of 15% for groups with turnover above EUR 750 million, in force in Spain since 2024 through transposition of Directive 2022/2523. DAC6, transposed via Royal Decree-Law 3/2020, requires disclosure of potentially aggressive cross-border arrangements. Art. 100 LIS governs Spain’s CFC rules on controlled foreign companies.

Real Results in International Taxation: Quantified Double Taxation Savings

• International structure that eliminates double taxation and withstands BEPS scrutiny with documented economic substance in each jurisdiction.
• Withholding taxes reduced to treaty minimum rates on dividends, interest, and royalties across all relevant jurisdictions.
• Full compliance with DAC6, CbCR, CRS, and local reporting obligations with no gaps.
• Frictionless international coordination: a single point of contact for all countries, with a coherent and documented strategy.
• Quantified tax savings in the first year, typically exceeding the cost of the service for groups with active structures.

International taxation requires a vision that integrates knowledge of Spanish law with that of the destination countries. Our team works in close coordination with local advisers in the principal jurisdictions to ensure every structure is robust, efficient, and defensible before any tax authority.

The internationalisation of a company is a transformative milestone that multiplies business opportunities, but also tax exposure. Tax authorities worldwide have intensified cooperation under the OECD’s BEPS framework, and information flows between jurisdictions with unprecedented speed. In this context, a well-designed international structure from the outset is far more efficient and secure than a reactive adjustment in response to a coordinated audit.

The first step is always the analysis of applicable double taxation treaties. Spain has over 90 bilateral treaties that can significantly reduce withholding on dividends, interest, and royalties. However, correct application of these treaties requires knowledge of their anti-abuse clauses, beneficial ownership requirements, and limitation of benefits provisions — elements frequently overlooked that can invalidate the claimed benefit. Our international tax team analyses each income flow to determine the optimal treatment.

Transfer pricing is the other major risk vector in any international group. Transactions between related parties must be priced as if conducted between independent third parties, and tax authorities cross-reference Country-by-Country Report data to identify inconsistencies. We coordinate the group’s transfer pricing policy with a global perspective that prevents bilateral adjustments and residual double taxation.

Spain’s international tax framework: the architecture

International tax advisory in Spain operates within an architecture shaped by: domestic law (principally Ley 27/2014 for IS, the LIRNR for non-residents, and LIRPF for individuals), Spain’s treaty network (covering more than 100 countries), and EU directives (Parent-Subsidiary Directive, Interest and Royalties Directive, DAC6 mandatory disclosure, ATAD I and II). The OECD BEPS framework has been substantially incorporated into Spanish domestic law, and the OECD Global Minimum Tax (Pillar Two, 15% global minimum) applies to large multinational groups from 2024.

Understanding how these layers interact — and identifying where domestic law, treaty provisions, and EU law may produce inconsistent results — is the core competency of international tax advisory. Spain has several structural features that create distinctive planning opportunities and risks:

• The Spanish holding company regime (ETVE — Entidad de Tenencia de Valores Extranjeros) allows dividend and capital gain repatriation from foreign subsidiaries effectively tax-free under the participation exemption (Article 21 LIS), making Spain a competitive European holding jurisdiction.
• The ZEC (Zona Especial Canaria) regime offers a 4% IS rate and other tax advantages to qualifying entities in the Canary Islands — one of the most competitive special economic zones within the EU.
• The DAC6 mandatory disclosure requirements apply to cross-border arrangements that meet specific hallmarks, requiring Spanish advisers and taxpayers to report to the AEAT.
• Spain has one of Europe’s most complex transfer pricing regimes, requiring documentation for all related-party transactions above de minimis thresholds.

Outbound investment: structuring Spanish groups internationally

For Spanish companies expanding internationally, the principal tax planning questions relate to: the structure of the holding chain, the treatment of repatriated dividends and capital gains, the location of IP and financing functions, and the withholding tax treatment of cross-border payments under applicable treaties.

Our outbound investment advisory covers: jurisdiction selection and entity structure, treaty benefit analysis, anti-avoidance rule (GAAR, SAAR, MLI provisions) assessment, transfer pricing documentation for intra-group transactions, and PE risk management for mobile employees and digital service models.

Inbound investment: non-resident companies in Spain

For foreign companies establishing operations in Spain, the tax entry analysis covers: the risk of creating a permanent establishment (PE) through the Spanish activities (which would subject the associated profits to Spanish IS), the applicable withholding tax rates on dividends, interest, and royalties under the relevant treaty or EU directives, and the optimal entity form — Spanish subsidiary versus branch versus service agreement.

Spain’s PE definition has been progressively extended: preparatory and auxiliary activities traditionally excluded from PE status are now more scrutinised under BEPS Action 7; the digital economy guidance (BEPS Action 1 and the OECD Model Commentary updates) extends PE risk to certain digital business models; and the commissionnaire arrangement PE risk is more significant after the Pillar One work. Our team provides PE risk assessments as a standard component of market entry advisory for inbound investors.

DAC6 and mandatory disclosure

All cross-border arrangements meeting one or more of the BEPS-aligned hallmarks must be reported to the AEAT within 30 days of the arrangement being available for implementation (for new arrangements) or the implementing step (for existing arrangements). The DAC6 reporting obligation falls on intermediaries (advisers, banks, law firms) but also on taxpayers where no EU-based intermediary exists. Our compliance team manages DAC6 assessment and reporting as part of our international tax engagement.

Contact our international tax team for a cross-border structure review or inbound investment analysis.

Worked Example: Spanish Company Expanding to Germany and Mexico

A Spanish manufacturing company with EUR 25M in revenue decides to establish a sales subsidiary in Germany and a distribution operation in Mexico. Both structures raise distinct international tax questions that must be addressed before operations begin.

For Germany: the company’s sales representative has been visiting German customers for 18 months, negotiating contracts and closing sales on behalf of the Spanish parent. Under the OECD Model (Art. 5) and the Spain-Germany treaty, this activity likely constitutes a dependent agent permanent establishment — meaning German corporate tax obligations on attributable profits may already have arisen. The first advisory step is a PE risk assessment to quantify the exposure and decide whether to regularise with the German tax authority or restructure the commercial model (for example, converting the representative to a commissionnaire or limited risk distributor).

For Mexico: the Spain-Mexico treaty provides a 5% withholding rate on dividends paid by the Mexican subsidiary to the Spanish parent (versus the domestic rate of 10%), subject to the beneficial ownership and anti-abuse conditions in the treaty. However, the OECD Pillar Two-driven updates to Mexico’s domestic law require that the Spanish holding entity have genuine economic substance — not merely legal ownership. We design the holding structure, document the substance requirements, and ensure the treaty benefit is accessible from the first dividend.

The combined saving on a EUR 2M annual dividend from Mexico: EUR 100,000 per year in reduced withholding, recurring. The PE regularisation cost in Germany: a one-off payment on historical profits, far less than the penalty and interest that would arise from an AEAT or German tax authority discovery.

Five Pre-Engagement Questions for International Expansion

Before starting an international expansion without tax advice, consider whether you can answer these questions with confidence:

1. Does any employee, agent, or warehouse in a foreign country constitute a permanent establishment? The answer requires a jurisdiction-specific analysis that most companies skip at the market entry stage — and then face as an accumulated liability when the tax authority asks years later.

2. What withholding rate applies to dividends, interest, and royalties between your Spanish parent and your foreign subsidiaries? Many companies apply the domestic rate when the treaty rate is substantially lower, effectively paying taxes they do not owe.

3. Does your group have a CbCR obligation? Groups with revenue above EUR 750M must file Country-by-Country Reports in Spain, disclosing profit, tax, and employee data by jurisdiction. Getting this threshold wrong — in either direction — creates compliance gaps or unnecessary cost.

4. Are any of your foreign subsidiaries subject to Spanish CFC rules? Art. 100 LIS allows the AEAT to tax the passive income of low-taxed subsidiaries even before it is distributed. If you have subsidiaries in jurisdictions with effective rates below 75% of what would apply in Spain, CFC analysis is not optional.

5. Is your group’s international structure DAC6-reportable? The mandatory disclosure rules catch more arrangements than most advisers initially assume. If your structure involves any cross-border element and a tax advantage, a DAC6 screening is a prudent first step.

ETVE: Spain as a Competitive European Holding Jurisdiction

The Spanish ETVE (Entidad de Tenencia de Valores Extranjeros) regime is one of Europe’s most competitive holding structures for groups with significant international operations. Under Article 21 LIS, dividends and capital gains derived from qualifying foreign subsidiaries are effectively 95% exempt from Spanish corporate income tax — an exemption rate that competes directly with the Netherlands, Luxembourg, and Ireland for international holding location decisions.

The qualifying conditions are: a minimum 5% participation in the subsidiary (or an acquisition cost above EUR 20M), a minimum 12-month holding period, and the requirement that the subsidiary is subject to a foreign corporate tax that is not characterised as a tax haven and that its income is predominantly from non-Spanish sources. A Spanish ETVE also benefits from Spain’s extensive treaty network — over 100 bilateral treaties — and can distribute dividends and capital gains to non-resident shareholders (whether corporate entities or individuals, EU or non-EU) free of Spanish withholding in most circumstances.

The ZEC (Zona Especial Canaria), with its 4% IS rate for qualifying entities in the Canary Islands, adds a complementary dimension for groups looking to establish operational or holding entities within the EU at significantly below-standard tax rates. ZEC registration requires genuine local substance — employment, local activity, minimum investment — but for groups willing to establish real operations in the Canary Islands, the combined ETVE/ZEC structure offers a post-BEPS-compliant platform for international expansion at a total effective rate that is among the lowest in Europe.

Pillar Two: What Spanish Groups Need to Know

The OECD Global Minimum Tax (Pillar Two), implemented in Spain through transposition of EU Directive 2022/2523, applies to multinational enterprise groups with consolidated revenue above EUR 750 million in at least two of the preceding four years. The Qualified Domestic Minimum Top-Up Tax (QDMTT) and the Income Inclusion Rule (IIR) require that the effective tax rate in each jurisdiction is at least 15%; where it falls short, a top-up tax is charged.

For Spanish groups in scope, the primary compliance obligations include: (i) assessing the effective tax rate per jurisdiction using the GloBE Income and GloBE Taxes definitions, which differ materially from accounting profit and financial tax charge; (ii) identifying low-taxed jurisdictions in the group structure; (iii) preparing the GloBE Information Return filed with the AEAT; and (iv) calculating and paying any QDMTT or IIR top-up tax due.

Groups that have structured operations in low-tax jurisdictions — ZEC, Malta, Ireland, or third-country locations — need Pillar Two impact assessments to understand how the 15% floor changes the economics of those structures. In some cases, the QDMTT paid in a qualifying domestic jurisdiction reduces the IIR exposure; in others, restructuring may be more efficient than paying the top-up. We provide practical Pillar Two advice focused on the decisions that need to be made, not theoretical exposition of rules that are already settled.

BMC Ecosystem Integration

International tax does not operate in isolation from the other dimensions of running a cross-border group. Our transfer pricing team ensures that every intercompany transaction is priced at arm’s length and documented to the OECD three-tier standard — the indispensable complement to any international structure design. Our M&A team structures cross-border acquisitions to ensure the acquisition vehicle, financing, and post-closing integration are tax-efficient across all relevant jurisdictions. For individual executives and employees moving internationally, our Beckham Law and non-resident tax teams address the personal tax dimension that complements the corporate structure. And our tax litigation team provides defence when a foreign tax authority challenges a position — whether through a MAP procedure, a TEAC appeal, or a contentious-administrative case before the Audiencia Nacional. Our transfer pricing team ensures that every intercompany transaction is priced at arm’s length and documented to the OECD three-tier standard — the indispensable complement to any international structure design. Our M&A team structures cross-border acquisitions to ensure the acquisition vehicle, financing, and post-closing integration are tax-efficient across all relevant jurisdictions. For individual executives and employees moving internationally, our Beckham Law and non-resident tax teams address the personal tax dimension that complements the corporate structure. And our tax litigation team provides defence when a foreign tax authority challenges a position — whether through a MAP procedure, a TEAC appeal, or a contentious-administrative case before the Audiencia Nacional.