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Anti-avoidance measures related to parent-subsidiary directive and payment of dividends in SpainAnti-avoidance measures related to parent-subsidiary directive and payment of dividends in Spain

Non-applicability of the parent-subsidiary Directive when the effective and final beneficiary of dividends is not in the EU

15.11.2010

In a decision dated 28-09-2010, the Central Economic-Administrative Court (an administrative body ruling on claims against taxation settlements before the case is brought before the Courts or also TEAC) answers the question on whether it is justified to carry out a withholding on the dividends paid by a Spanish company to an English company, offering an in-depth examination on the interpretation of the anti-abuse regulations included under parent-subsidiary Directive 90/345.

This administrative body ruled that the parent company, located in Great Britain, is not the effective beneficiary of the dividends received by the Spanish company (as these dividends are forwarded to a third country outside the EU without taxation being paid in Great Britain), and there is no business management in Great Britain nor is there proof of a sound economic reason to justify the mediation of a company in Great Britain.

Given the above, the Spanish subsidiary company was obliged to levy a withholding tax under Spanish regulations and not the one provided by the Double Taxation Agreement, as the Agreement’s anti-abuse clause on the beneficial owner of the dividends is to be applied instead.

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