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Spanish Supreme Court follows CJEU's case law: dividend distributions within the EU shall be tax exempt unless the tax authorities prove abuse

In a recent ruling issued on 8 June 2023, the Spanish Supreme Court followed the Court of Justice of the European Union’s decisions in Eqiom and Enka (C-6/16), Deister Holding (C-504/16) and the Danish cases (C-116/16 and C-117/16) - as the Spanish National Court (Audiencia Nacional) had already done in the appealed ruling - and concluded that the Spanish anti-abuse clause which applies to dividend distributions by a Spanish subsidiary to its European parent company controlled, directly or indirectly, by shareholders not resident in the EU or in the EEA must be construed in such a way that the burden of proof of abuse falls on the Spanish tax authorities.

According to the CJEU case-law, in order to justify refusing to apply the exemption, the Spanish tax authorities must evidence that all the elements of an abusive practice are present in a given situation. They cannot deny the exemption based on general presumptions of fraud and abuse (such as those that prevent specific categories of taxpayers from applying the exemption: for instance, European parent companies controlled by third-country residents (entities or individuals)) without being required to provide even prima facie evidence of the absence of economic reasons or of fraud or abuse. In other words, the Spanish tax authorities must not pass the burden of proof to the taxpayer, as this would undermine the objective pursued by the Parent-Subsidiary Directive, that is, to prevent double taxation of dividends within the European Union, as well as the freedom of establishment guaranteed by the EU treaties.

In order to be compatible with Article 1(2) of the Parent-Subsidiary Directive, the Spanish anti-abuse rule must be construed an applied restrictively, because it represents an exception to the benefits of the Directive. Thus, only those dividends distributed to European parent companies incorporated in circumstances where the Spanish tax authorities can prove abuse should not be entitled to this dividend exemption. As a result, this interpretation should allow Spanish-source profit distributions to European parent companies to benefit from the exemption when the Spanish tax authorities are not able to evidence that an abusive scheme was used.

The ruling represents a turning point in the Supreme Court’s case law, which until now had ruled that the burden of proving lack of abuse or fraud was on the taxpayer’s side. Pursuant to the wording of this Spanish anti-abuse rule (in the case at stake, before 1 January 2015), the Spanish tax authorities were entitled to deny the exemption and tax the dividends on the grounds that the European parent company did not provide sufficient proof of compliance with any of the circumstances which, in accordance with the law, would evidence the lack of abuse. Such interpretation, as stated above, infringes EU law  because it establishes a general presumption of abuse and transfers the burden of the proving the lack of abuse to the taxpayer.

This change of approach is very significant for Non-Resident Income Tax taxpayers, as it gives them greater legal certainty and forces the Spanish tax authorities to argue and evidence in each case that an abuse or fraud exists, particularly in European groups controlled by entities or persons resident in third countries.


uriamenendez, spanish tax