What is the place where the activity is carried on for Business Activities Tax (IAE) purposes when employees work remotely?

The Directorate General for Taxation (hereinafter, the DGT) addressed this question in a recent binding ruling (consulta vinculante) of November 6, 2020, V3293-20PDF.

The requesting entity is mainly engaged in legal, accounting, audit, and tax advisory activities, etc., and its employees are working remotely from their places of residence.

According to the DGT, as a general rule, the place where business activities are carried on is the municipality in which the premises are located, and service activities are deemed to be carried on at premises provided that the services are actually rendered from an establishment.

The analysis rests on the premise that the requesting entity carries on activities classified in Section 84 (services provided to businesses), which include the provision of “Legal services” in Group 841 and “Financial and accounting services” in Group 842, both of which are assigned minimum municipal tax amounts (cuotas mínimas municipales).

On that premise, the connecting factor for determining the place where the activity is carried on is the municipality in which the establishment from which the service is rendered is located. Therefore, the place where the activity is carried on will be the municipality in which the establishment from which the services are provided is situated. Consequently, the entity must be registered and pay the corresponding tax at that address, and it is not required to be registered or pay tax in the municipalities in which it has no premises.

In short, the DGT considers that the homes of employees who are working remotely cannot be regarded as “premises or establishment from which the service is rendered” and, therefore, the entity is not required to register on the tax roll and pay tax in the municipalities in which those homes are located.

Furthermore, as regards the municipal solid waste collection fee, it should be noted that the requesting company is not required to pay this levy in municipalities in which it has no establishment, even if its employees’ homes, from which they work remotely, are located there.