Spanish tax legislation has been always sensitive to the potential risk that non-resident (non-established) taxpayers deriving income from Spanish sources do not comply voluntarily with their tax obligations.
However, the Spanish system does not impose on resident companies and individuals making payments to non-resident taxpayers a general obligation to withhold the related taxes.
In Spain there is a general system of withholdings (mainly applicable to personal income and capital income) that applies irrespective of the nature (as resident or non resident) of the party obtaining the income. Therefore, this withholding mechanism does not apply to all types of income and does not specifically regulate resident/non resident tax relationships. On the contrary, Spanish legislation simply establishes a system of joint derivation of responsibility which implies that the aforementioned Spanish residents would be jointly liable for the taxes of the non-resident to which the payment is made.
The major problem arises in the area of service contracts signed between residents and non residents in Spain. Here, typically, the Spanish payer has no legal authorization to withhold any amount for the non-resident tax, but is simply considered jointly liable for the taxes of the non-resident party.
If any withholding is made, the non-resident party could argue that the contract has been breached since the consideration agreed upon is not fully paid. But if not, the Spanish resident party would be at the mercy of the non resident and would be liable if the non resident did not pay the related tax.
Some controversies in this field have made the parties more sensitive to the need to properly cover this aspect of the transaction in the related contract. A (tax) clause, properly drafted, in which the parties establish their agreement to a withholding, or guarantee, or any other mechanism, is in many situations highly advisable.
José Palacios
