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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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Spanish National Court follows CJEU in placing burden of proving abuse on Spanish tax authorities

In a ground-breaking ruling, the Spanish National Court (Audiencia Nacional) held that the burden of proof of abuse falls on the Spanish tax authorities and that the Spanish anti-abuse rule infringes European Union law.

The ruling represents a turning point in the case law of the Spanish Supreme Court and the Spanish National Court. Both had previously ruled that the burden of proving the absence of abuse or fraud falls on the taxpayer where a Spanish company distributes dividends to an EU-resident parent entity controlled by third-country residents.

The Spanish National Court now concluded that it is for the Spanish tax authorities to prove that all the elements of an abusive practice are present, and it prevented the tax authorities from transferring the burden of proof onto the taxpayer to demonstrate that an exception to the anti-abuse rule applies (for example, by making assumptions that a particular corporate structure was created solely for tax purposes).

Applying the CJEU decision in Eqiom and Enka, Deister Holding and the Danish conduit cases, the Spanish National Court concluded that the Spanish tax authorities did not provide enough evidence to prove that the Luxembourg parent company was not incorporated for valid economic reasons. Thus, the dividends that were distributed in the tax year 2010 by the Spanish subsidiary should have been exempt from tax in Spain under article 14.1.h) of the Spanish Non-Resident Income Tax Law. The Spanish National Court consequently overrode the tax assessment which led to the proceedings.

This change in approach is very relevant for non-resident income tax payers, which would frequently be investing in Spanish entities through these types of corporate structures. In each case, the Spanish tax authorities would have to establish and evidence the particular reasons which may lead them to objectively conclude that an abuse or fraud situation exists (that would warrant the application of the anti-abuse rule) and that, therefore, the dividend withholding tax exemption of the Parent-Subsidiary Directive would not be applicable.

The Tax Proceedings and Disputes team, led by Guillermo Canalejo Lasarte and David López Pombo, at Uría Menéndez acted for the investor during the tax audit and the administrative and judicial proceedings in the case that led to this important decision by the Spanish National Court.


uriamenendez, gcanalejo, dlopez, spanish tax, danish conduit cases, tax avoidance, parent subsidiary directive, dividend withholding tax