In the case in hand, a Spanish tax resident who works for a subsidiary in Spain of a UK holding company, travels frequently to the UK to work for such company. Remunerations derived from his work, both in Spain and the UK, are paid by his employer, the subsidiary in Spain. However, in accordance with the Double Taxation agreement (DTA) between Spain and the UK, the parent company deducts tax on a Pay As You Earn (PAYE) basis for the work undertaken in the UK.
Binding consultation ref. V1163-19 clarifies a case from a taxpayer on whether he is allowed or not to deduct in his Spanish income tax, taxes paid in the UK.
The Tax office determines the following:
a) Pursuant to article 14.2 of the DTA and if the conditions set are fulfilled, taxes should only be payable in Spain and the taxpayer would not qualify for a tax deduction on taxes paid in the UK, notwithstanding any possible rebate application to the UK tax authorities.
b) If in accordance with the provisions set in the DTA, the UK tax authorities had the right to tax remunerations for the works carried out in the UK, Spain must allow to deduct taxes paid as PAYE.
Following with item b) above, the deduction process will be as follows:
1. As far as the taxes have already been paid in the UK, such amount will be deductible in the Spanish income tax filing.
2. If by the time the Spanish income tax self-assessment is filed, the PAYE tax has yet not been paid, the taxpayer will not be entitled to a deduction and will have to amend its self-assessment once the PAYE has been paid.