This content is from: Spain

Spain: Spanish court makes favourable decisions on tax reimbursement to a foreign foundation deriving from EU law

Rafael Calvo
Salvador Pastoriza
In recent years, relevant steps have been taken towards the integration of the European internal market in the field of taxation. Generally speaking (and with some particular exceptions), this integration has not been achieved through legislative harmonisation, but through European Court of Justice (ECJ) case law.

Among other various effects, this European integration (and the need to ensure the free movement of capital within the EU) has given investment companies, pension funds, investment funds and charities of the EU or the European Economic Area (EEA) the opportunity to claim the refund of taxes unduly paid in breach of Community law. New developments in this field have recently taken place in Spain, as we discuss below.

In November 2013 the Madrid High Court (Tribunal Superior de Justicia de Madrid) ordered the Spanish tax authorities to refund the withholding taxes incorrectly borne by a Swedish foundation (with neither a branch nor a subsidiary in Spain) on the dividends received as a consequence of the stock held in Spanish listed companies. According to the Madrid High Court, the Swedish foundation was discriminated against for not being resident (nor having a branch) in Spain, since Spanish foundations do not pay a similar tax – they are exempted – when receiving dividend income.

In those judgments, the Madrid High Court concludes that "the denial of the exemption claimed by the foundation breaches the free movement of capital within the EU, because there is no circumstance to justify an unequal treatment by reason of the State of residence of the foundations." To this end, the court has mainly quoted the Centro di Musicologia case (C-386/04), among other ECJ judgments.

It is important to note that the Spanish court has recognised that the necessary comparability in the situation of Spanish and foreign taxpayers does not mean identity of circumstances between them, but only an objectively comparable situation. In this particular case, the court did not require the Swedish foundation to fulfill all the legal requirements established by the Spanish law (specially, the registration in the Spanish foundation's registry) but to comply with similar requirements as regards its social and non-profit purpose on its state of origin.

The court also addressed in favour of the taxpayer the practicalities of evidencing that the withholding tax was actually borne by the foreign foundation, despite the dividend being paid through several financial intermediaries. In addition, the court granted to the taxpayer the right to receive late payment interest from the very date of the withholding tax levy.

The same principles as those sustained by the Madrid High Court (unequal tax treatment to comparable financial investors) could be raised by investment funds, pension funds and other not-for-profit entities already claiming before the Spanish Courts the refund of the discriminatory taxes borne by them as compared to national counterparts/investors. Although the Spanish law was amended in 2010 – so that it would no longer discriminate against European undertakings for collective investments in transferable securities (UCITS) and pension funds – dividends received before 2010, as well as those received by different entities (foreign foundations and insurance companies, among other taxpayers) would still suffer an unequal treatment.

We only hope that new court decisions will confirm the above criteria and will contribute to eliminate not only these restrictions to the free movement of capital, but also the burdensome proceedings still necessary to repair its effects.

Rafael Calvo ( and Salvador Pastoriza (
Garrigues Taxand
Tel: +34 915145200

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