Traditionally, the application of thin capitalisation rules has triggered a number of questions which have been extensively debated by tax commentators. Some of them have been clarified by the Spanish courts or the Directorate-General of Taxes in various rulings, but some others have remained open to discussion.
Two Supreme Court judgments, both rendered in the course of 2011 (March 17 and November 2, respectively), have provided interpretation guidelines on two of those controversial issues relating to the application of the thin capitalisation rules, namely:
The compatibility of the domestic thin capitalisation regulations and the non-discrimination clause contained in tax treaties; and
The delimitation of the concept of indirect indebtedness in cases where the related party is not the lender but the guarantor of the loan.
Thin capitalisation and tax treaties
A previous judgement of the Supreme Court, dated October 1 2009, had already declared the incompatibility of the thin capitalisation rules...