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Study of the agreement

Tax Relations

In addition to setting up the general principles applicable to tax relations, the Chapter I of the Economic Agreement distributes competence between the Basque Country and the Spanish State, in relation to legislative, tax inspection and levying powers concerning each of the agreed tax figures within the tax systems of the Historical Territories.

The distribution model of these competences is based on the classic criteria of fiscal residence and fiscal domicile, as used and determined, in general, in the OECD Model Tax Convention to prevent double taxation, in order to distribute tax powers between different jurisdictions. In addition and as a result of the existence of several tax administrations within the territory of the Spanish State, the Economic Agreement lays down some specific criteria, that is, business turnover and place of transactions, whose function is the distribution of the different tax powers that are to be assigned to each of them.

The criteria for the determination of habitual residence for individuals and fiscal domicile for corporations are set up in Section XVI of Chapter I, requiring necessarily for their application the premise that the taxpayer is resident in the Spanish territory according to the law.

In general, habitual residence for individuals confers competence to the tax administration whose territory the tax payer has remained in for the longest period in a tax year, or for the purposes of some tax figures, in the previous year. As regards corporations, fiscal domicile is equivalent to the registered office of the corporation provided that the administrative management and direction of the business is effectively centralised therein.

For the purposes of the Corporate Income Tax and of the Value Added Tax, the distribution of the tax burden is made in accordance with the quantified portion of the total business turnover that is performed in the territory of each tax administration. The Economic Agreement defines the total business turnover concept as "the total income, net of Value Added Tax and the equivalency surcharge, where applicable, obtained for supplies of goods and of services performed in the course of the taxable person's business or professional activity". In order to identify the operations which are understood to be performed in the Basque Country, the Economic Agreement sets some rules to determine the place of performance of the transactions or operations.

The criteria to determine the habitual residence and the fiscal domicile are summarized in the chart  "Habitual residence and fiscal domicile".

The rules for the placement of the transfers and operations in the Basque Country can be looked up in the chart  "Determination of the place of transactions".