June 2021

 
     
 

THE EU COURT OF JUSTICE DANISH CASES: THE SPANISH NATIONAL COURT (AUDIENCIA NACIONAL) RECTIFIES THE CENTRAL TAX APPEAL COURT AND ITS PREVIOUS DECISIONS AND OVERRIDES A WITHHOLDING TAX ASSESSMENT ON DIVIDENDS PAID TO A LUXEMBOURG PARENT COMPANY CONTROLLED BY A NON-EU RESIDENT INVESTMENT GROUP

 
     
 

The Spanish anti-abuse rule infringes European Union law.

According to the Spanish National Court (Audiencia Nacional), the burden of proof of abuse falls on the Spanish tax authorities.

THE INVESTMENT GROUP WAS ADVISED BY URÍA MENÉNDEZ

The ruling represents a turning point in the case law established so far by the Spanish Supreme Court and the Spanish National Court, which both ruled that the burden of proving lack of abuse or lack of fraud is on the side of the taxpayer when a Spanish company distributes dividends to an EU-resident parent entity controlled by third-country residents (Spanish National Court judgments of 31 May 2012, rec. 344/2009, of 8 October 2015, rec. 475/2012; and of 3 June 2015, rec. 264/2012; and of the Spanish Supreme Court of 21 and 22 March 2012, rec. 5228/2008 and 1260/2009).

The Spanish National Court, in line with the European Union Court of Justice case law established in rulings of 7 September 2017 (case C-616), of 20 December 2017 (cases C-504/16 and C-613/16) and of 26 February 2019 (cases 116/16 and 117/16), concludes that the Spanish tax authorities have to prove that all the elements of an abusive practice are present, and prevents them from transferring the burden of proof onto the taxpayer to demonstrate that an exception to the anti-abuse rule applies (for example, by making assumptions that a particular corporate structure was created solely for tax purposes).

Applying the above rulings to the case at hand, the Spanish National Court concluded that the Spanish tax authorities did not provide enough evidence to prove that the Luxembourg parent company was not incorporated for valid economic reasons. Thus, the dividends that were distributed in the tax year 2010 by the Spanish subsidiary should have been exempt from tax in Spain under article 14.1.h) of the Spanish Non-Resident Income Tax Law, overriding as a result the tax assessment which led to the proceedings.

This change in approach is very relevant for Non-Resident Income Tax taxpayers, which would frequently be investing in Spanish entities through these type of corporate structures. Indeed, the Spanish tax authorities must argue and evidence in each particular case the reasons which may lead them to objectively conclude that an abuse or fraud situation exists (warranting the application of the anti-abuse rule) and that, therefore, the dividend withholding tax exemption of the Parent-Subsidiary Directive is not applicable..

The Tax Proceedings and Disputes team at Uría Menéndez that acted for the investor, both during the tax audit and during the administrative and judicial proceedings, was led by Guillermo Canalejo Lasarte and David López Pombo.

 
     
 

In case of any doubts or comments, please do not hesitate to contact:

 

Guillermo Canalejo Lasarte
guillermo.canalejo@uria.com


 

David López Pombo
david.lopez@uria.com

       
 

Miguel Cremades Schulz
miguel.cremades@uria.com

  Gloria Marín Benítez
gloria.marin@uria.com
 
     
 

The information contained in this newsletter is of a general nature and does not constitute legal advice