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Foreign company designs store interiors and carries out works for international luxury chain. Tax implications

Some believe that tax compliance is easy, until the tax audit starts

An Italian luxury goods brand entrusts the design of its stores to a specialist company, to ensure that their interior projects a homogeneous image across the globe. This specialist company subcontracts the works to other national and foreign companies.

In this case, the Spanish subsidiary of an Italian company contracted a well-known German company to carry out renovation works in one of the chain’s new stores in Spain. This involved high precision work, where meeting deadlines was very important.

Firstly, it should be determined how these works are to be taxed from a VAT point of view. Are we dealing with a mere provision of services or the handing over of construction works? It should also be examined whether all the foreign companies involved in the works need to obtain a Spanish tax number. The most advisable option is probably that the German company is established in Spain for VAT purposes so that it can deduct Spanish input VAT through the procedure for established taxable persons, among other advantages.

It is also worth mentioning that, for a few years now, depending on the type of work carried out, the company issuing the invoice for the works must not apply output VAT. This obliges the recipient of the invoice to pay the VAT through the reverse charge mechanism.

Finally, depending on how the work is organised and whether there is a fixed place of business in Spain, the foreign companies carrying out the works could be deemed to have a permanent establishment in regard to Corporate Tax, which would require studying the applicable double taxation agreements. It should be noted that being established from a VAT point of view is not the same as being established from a Corporate Tax point of view.

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