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Organisation of trade fairs in Spain and choosing the best tax structure
Some believe that tax compliance is easy, until the tax audit starts
European company organises trade fairs of international prestige in Barcelona. Where should the profits of this business be taxed and how should they be invoiced?
A well-known international company specialising in the organisation of trade fairs in selected cities across the world, wishes to hold an exhibition in Barcelona on a regular basis over a number of years. This exhibition is very successful and attracts many other businesses in the sector, as well as visitors from all over the world. The exhibition is managed directly from abroad, and the company subcontracts some services from Fira de Barcelona – Barcelona’s trade fair institution.
Firstly, it is essential to plan the development of the activity from the beginning, establishing what is done in each country. This is because, if the foreign company has a management centre in Spain, it will be deemed to have a permanent establishment in regard to Corporate Tax. This is often difficult to determine, as the design of double taxation agreements and the concept of permanent establishment date back to the 1950’s, when services where virtually non-existent.
The invoicing method should also be studied, as the foreign company will probably avoid being established in Spain for VAT purposes, and therefore, its clients – both Spanish and foreign – will receive an invoice with a foreign tax identification number.
This planning should also include the handling of Spanish input VAT as, in the event of requesting a VAT refund through the procedure for non-established companies, the Spanish tax authorities will require a detailed proof of the operations carried out. Things become more complex if the company intends to sell entrance tickets, as this would generate output VAT in Spain. Is it possible to not be established in Spain to perform the day-to-day activities of the exhibition while being established for the ticket-selling activity? Should two separate Spanish tax number be requested or does one suffice? What if the company subcontracts work with other foreign companies to be carried out in the exhibition?
All of these questions and many more call for adequate tax planning, taking into account not only Spanish legislation, but also that of the other countries, as to avoid tax conflicts of significant financial magnitude.