The Dependent Agent Route: When a Remote Employee in Spain Sells for the Company

Two routes, assessed separately

Article 5 of the OECD Model contains two main routes to a permanent establishment. Under paragraph 1, the enterprise has a fixed place of business. The 2025 paragraphs on working from home belong here. Under paragraph 5, a person acts on behalf of the enterprise and habitually concludes contracts, or habitually plays the principal role leading to their conclusion. Then the enterprise is deemed to have a permanent establishment for whatever that person does for it, whether or not there is any place.

The routes are independent. An employee can pass the 50 % test and the commercial reason test and still create a permanent establishment as an agent. And the facts that matter are different: for paragraph 1, where and why the person works; for paragraph 5, what the person does in the sales process.

What the current Model says

Since 2017, Article 5(5) covers a person who acts in a State on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, where those contracts are in the name of the enterprise, or for the transfer or use of its property, or for the provision of services by it.

The second limb was added to capture arrangements in which the local person does the selling and head office merely rubber-stamps. Signing in another country no longer breaks the link if, in substance, the deal was made locally.

Two exceptions remain. Activities that are only preparatory or auxiliary do not count. And an independent agent acting in the ordinary course of its own business is excluded under Article 5(6), unless it acts exclusively or almost exclusively for enterprises to which it is closely related.

Which wording applies under a Spanish treaty

This is not uniform. Most of Spain's treaties were signed before 2017 and use the earlier wording, which refers to a person who has, and habitually exercises, an authority to conclude contracts in the name of the enterprise. The 2017 wording reaches a given treaty only if it was renegotiated, or if both countries chose to apply the corresponding article of the multilateral instrument. So the text has to be checked treaty by treaty.

Under the older wording, the Spanish courts have not been literal. In well-known cases decided by the Supreme Court in the last decade, involving multinational groups that sold in Spain through local subsidiaries, a permanent establishment was found on the basis of the substance of the local activity and the degree of control, even though contracts were formally concluded abroad. A company should therefore not assume that the older text is a safe one.

Three scenarios

The country manager. A US software company hires a sales director in Madrid. She finds customers, negotiates price and terms within a discount band, and sends the order form to Dublin for countersignature, which is never refused. Under the 2017 wording this is the principal role leading to contracts routinely concluded without material modification. Under the older wording, the authority she exercises in fact would be examined closely.

The business developer. A German engineering firm employs someone in Bilbao to attend trade fairs, visit prospects and explain the product. Quotations are prepared in Stuttgart by a pricing team, negotiated by them with the customer, and regularly differ from what the prospect first discussed. He is not concluding contracts or playing the principal role. But his regular meetings with customers are a commercial reason for his presence, so above 50 % of working time his home could be a place of business under paragraph 1. Avoiding one route does not avoid the other.

The account manager with renewals. A British firm's employee in Valencia looks after existing Spanish customers. Renewals are automatic unless cancelled, and price changes are set centrally. She has conversations about renewal but decides nothing. The agent risk is low. The home-office analysis is the relevant one.

Reducing the risk

• Design the sales process, and follow it. If terms are really negotiated and approved elsewhere, make sure that is what happens, and that records show it.
• Limit authority in writing, and do not let practice exceed it. A power that is never exercised is still a fact; a prohibition that is ignored is worthless.
• Watch "routinely without material modification". If head office approves every deal as presented, the approval adds nothing.
• Consider selling through a Spanish entity where there is a real local sales function. A subsidiary or a registered branch, with a properly priced reward, is often cheaper than defending the absence of one.

If the conclusion is that there is a permanent establishment, the profit to be attributed to an agent is a question of its own: see what a permanent establishment in Spain involves. For the home-office route, go to the main guide, and for the wider subject, our page on permanent establishment in Spain.