Dell Spain is part of a multinational group (Dell) that manufactures and sells computers. Dell Ireland, operates as distribution hub for most of Europe. Dell Ireland has appointed related entities to operate as its commissionaires in several countries; Dell Spain and Dell France are part of this commissionaire network.
The group operates through a direct sales model and sales to private customers in Spain are conducted by Dell France, through a call centre and a web page.
Dell Spain use to operate as a full-fledged distributor, but after entering into a commissionaire agreement Dell Spain now served large customers on behalf of Dell Ireland.
A tax assessment was issued by the tax authorities. According to the assessment the activities in Spain constituted a Permanent Establishment of Dell Ireland to which profits had to allocated for FY 2001-2003.
Judgement of the Supreme Court
The Supreme Court concludes that the activities of Dell Spain constitutes a Permanent Establishment of Dell Ireland under both the “dependent agent” and “fixed place of business” clauses of the treaty.
The expression “acting on behalf of an enterprise” included in article 5.5 of the Spain-Ireland tax treaty does not necessarily require a direct representation between the principal and the commissionaire, but rather refers to the ability of the commissionaire to bind the principal with the third party even when there is no legal agreement between the latter two. Furthermore, the Supreme Court considers that Dell Spain cannot be deemed as an independent agent since it operated exclusively for Dell Ireland under control and instructions from the same.
Regarding the “fixed place of business”, the Supreme Court states that having a place at the principal’s disposal also includes the use of such premises through another entity which carries out the principal’s activity under its supervision.
This Court also explained that considering a company as a PE is not only based on its capacity to conclude contracts that bind the company but also on the functional and factual correlation between the agent and the company in the sense that the agent has sufficient authority to bind the company in its day to day business, following the instructions of the company and under its control.
In regards to question of Employee stock option expences, the Court partially upheld the claim of Dell and stated “”expenses that are correlated with income” are deductible expenses. Consequently, any expense correlated with income is an accounting expense, and if any accounting expense is a deductible expense in companies, with no exceptions other than those provided for by law”Spain-vs-Dell-20-june-2016-Supreme-Court-case-nr-2861-2016