Spanish highest court rules same tax must apply to non-EU and EU-domiciled funds

On the 11/27/19 at 7:09AM
The Spanish supreme court's decision could lead to massive dividend tax refunds to investment vehicles that are not domiciled in the European Union.

The decision of the Supreme Spanish court (Tribunal Supremo) sets a precedent, as reported by Spanish newspaper Expansión as it remains the first case in which it acknowledges non-EU domiciled funds shall be applied a similar level of tax to that applied to Spanish and EU-domiciled funds. So far, non-EU domiciled funds had their dividends deriving from investments in Spain withheld at source and taxed at a rate comprised between 15% and 21% whereas those from Spanish and EU-domiciled funds (since 2010) were applied a 1% tax.

The court's decision ruled in favour of the Delaware Pooled Trust Fund, which was demanding to the Spanish tax agency the repayment of dividends withheld at source and taxed at a 21% rate. The US trust argued the measure breaches the fundamental freedom of capital movements that is enshrined in the article 63 of the treaty on the functioning of the European Union (TFEU). 

As a consequence, the decision entitles non-EU domiciled funds to claim a refund towards the Spanish tax agency. The total amount could exceed €10bn in total according to sources cited by Expansión and penalties may be added because of a former court ruling that concerned EU-domiciled funds. Over the last couple of years, the Spanish tax agency had already reimbursed more than €1bn to EU funds that were being applied the non-EU funds' tax rate until 2010 following rulings from the Spanish supreme court.

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