Withholding Tax & Antiabuse Rules on EU flow of profits for NON-EU Groups: Time to Review EU corporate structures!

Juan Martínez
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This Wednesday 21st the Spanish Supreme Court ruled on a case involving the application of the withholding tax to a spanish entity paying dividends to its Parent EU company.

The Supreme Court has confirmed other lower-tier tribunals position (as well as former ECJ jurisprudence on that) stating that the burden of the proof is on the Revenue to ascertain whether there is no valid business reasons to defend that it is not an abusive corporate structure.

Remember that the withholding zero rate applies when dividend is paid to EU companies (meeting several requirements) but not if the majority of the voting rights are held directly or indirectly by companies or individuals outside the EU ....”except” even in this case, if those structures and operations have valid business motivation and substantive entrepreneurial reasons (cuando la constitución y operativa de aquella responde a motivos económicos válidos y razones empresariales sustantivas). Therefore, it is essential that all non-EU groups or individuals investing in European Holding companies that have other countries subsidiaries within the EU review their current and past position to see whether they are facing this risk (Local Revenue aggressive position). The piece of news is positive and gives certain legal certainty, but it is not a safe harbour for groups that perhaps do not have meet such business valid and substantive entrepreneurial “substance”.

Our International Tax Team at Grant Thornton may assist you to check whether your EU Holding and the underlying companies may meet or not this requirement. Feel free to ask more information on this or other international tax matters.