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Spanish withholding tax applicable to non residents companiesSpanish withholding tax applicable to non residents companies

Discrimination by Spanish regulations on the withholding tax applicable to dividends paid to non-resident companies

01.07.2010

In a judgement dated 03-06-2010 (case C-487/08), the EU Court declared that Spain is guilty of treating non-resident parent companies in Spain worse than parent companies resident in this country. The reason for the dispute is that Spain demanded a minimum 5% holding to avoid the distribution of dividends of the parent company being subject to a withholding at source.

However, at the time the Commission made the claim, it required 20%, in the case of parent companies resident in the EU. That is, the Spanish parent company had better taxation treatment than the European parent company.

The EU Court referred to a previous judgement (Amurta case, C-379/05) and it ended with a very useful analysis of Double Taxation Agreements in the scope of the EU, where EU Law is the prevailing source of law. The Court concluded that the recognition of the Double Taxation Agreements in force among the states in addition to their mechanisms to avoid double taxation cannot under any circumstances involve the application of discriminatory laws (unjustified inequality) to companies exercising their right to the freedom of movement of capital within the EU.

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