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Some believe that tax compliance is easy, until the tax audit starts
European Commission recommendation to require the reduction of withholdings on income paid by non-residents in order to avoid delays in the refund of excess withholdings
Our firm regularly faces the case of a non-resident natural person obtaining revenue in Spain who has to claim the refund of excess withholdings from Spanish authorities in relation to the withholding rate that would apply under the double-taxation agreement. By way of example, if a German resident received dividends from a Spanish company (either directly or indirectly through a German bank managing the shares), it is likely that the withholding applicable in Spain would be 19%, which is the usual rate for non-residents. According to Art.10 of the Double Taxation Agreement between Germany and Spain, in this case, the rate applied should not exceed 15%.
The consequence is that the German resident will need to claim the difference to be refunded by the Spanish authorities, and this obliges the German resident to apply for a tax identification number in Spain, in addition to providing detailed documents (residence certificate, etc.), to procure the services of a specialist to prepare and submit the documents on his behalf and, additionally, to wait at least six months to have the money refunded.
This entire process makes investments in Spain much more expensive and this is a barrier to the free movement of capital within the EU. This is why the European Commission approved a recommendation on 19-10-2009 (2009/784/CE) advising states to make the lowest withholding at first, and thus avoid the entire refund process. If the state does not wish to do this, the refund process should be as simple and as fast as possible (even by removing the requirement to supply a residence certificate).
In relation to Spain, foreign investors are advised to previously inform the payer of their revenues in Spain that they wish to benefit from a withholding rate lower than the 19% rate set forth in Spanish laws.