France-Spain cross-border: when proximity creates a permanent establishment.
Distance forces companies to structure. A shared border lets them avoid the question for years — which is exactly how French businesses accumulate a Spanish taxable presence nobody decided to create.
A German company selling to Spain thinks of it as international expansion and structures accordingly. A French company in Toulouse selling into Catalonia frequently does not think of it as expansion at all — the customer is two hours away, the salesperson drives there, and nothing about the arrangement feels like establishing abroad.
That is the trap. A permanent establishment is a taxable presence that arises from what actually happens, regardless of whether anyone intended it, registered anything or believed they were operating in Spain. The border does not make the concept apply less. It makes companies notice it later.
The three routes into a PE.
"They do not sign contracts" is no longer a defence.
The multilateral instrument broadened the dependent agent test to catch people who habitually play the principal role leading to contract conclusion, even where the formal signature happens at head office. A salesperson who negotiates everything and sends the paperwork to France for countersignature is precisely the situation this addresses.
Patterns that create exposure.
| Situation | Risk level | Why |
|---|---|---|
| Occasional sales visits, contracts concluded in France | Low | No fixed place, no habitual conclusion |
| A salesperson living in Spain, working from home for the French company | High | Fixed place at the company's disposal plus agent activity |
| A small warehouse holding stock for Spanish customers | Depends | Storage alone may be preparatory; fulfilment and delivery generally are not |
| Technicians on Spanish client sites for extended projects | High | Duration thresholds for installation and construction |
| A commercial agent working for several principals | Lower | Genuine independence matters, but is tested on substance not on contract wording |
| An office in Barcelona registered to nobody in particular | High | Fixed place at the company's disposal |
| Remote employees hired in Spain by the French entity | High | Creates social security obligations and frequently PE exposure at once |
The warehouse row deserves a note. Activities of a purely preparatory or auxiliary character can be excluded from the PE definition — but the MLI narrowed those exclusions and added an anti-fragmentation rule preventing a group from splitting one operation across several entities to keep each piece below the threshold. Storage that is really fulfilment is fulfilment.
What happens once a PE exists.
A subsidiary is usually not more tax. It is the same tax, controlled.
Companies resist creating a Spanish entity because it appears to add a tax burden. Where a PE already exists or is forming, the Spanish profit is taxable in Spain either way. The subsidiary makes the outcome deliberate, documented, filed on time and priced through transfer pricing you control — instead of attributed retrospectively by an inspector.
The border regions, specifically.
Assessing your own position.
- Does anyone work regularly in Spain for the French company, including from their own home?
- Who negotiates the terms of Spanish contracts, and where does that negotiation happen?
- Is there space in Spain the company uses systematically, whether leased, borrowed or a client's?
- Do you hold stock in Spain, and is it storage or fulfilment?
- How long do projects on Spanish sites last, cumulatively as well as individually?
- Are activities split across group entities in a way that keeps each below a threshold?
- Could you evidence the answers if asked to, from records made at the time?
If several answers point toward presence, the useful next step is not to argue the position more finely. It is to decide what the structure should be, and to move to it deliberately — because the alternative is having the question answered for you at a moment you did not choose.
A Spanish SL makes the same activity deliberate.
Incorporation, tax activation, employer registration and intercompany documentation — so the Spanish profit is declared on your terms, with transfer pricing you control.
Does one employee working from home in Spain create a PE?
We only store goods in Spain. Is that safe?
Our Spanish agent is independent. Does that protect us?
What if we have had a PE for years without knowing?
Is a subsidiary really the answer?
The France-Spain cluster.
Two hours away is still abroad. The tax authorities know that.
Book a free call ↗Alexander Baranov
Seventeen years designing and delivering cross-border corporate structures — incorporation, tax, holding, banking and market entry — for founders and companies expanding into Spain and the EU. Author of professional books on entering the Spanish market.
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