The ECJ has recently passed a ruling (Case C-487/08) against the Spanish provision imposing a WHT on dividends distributed by a Spanish company to its corporate shareholder (tax resident in the EU) where, under the same circumstances, a Spanish corporate shareholder would not suffer such tax burden.
According to domestic legislation, a Spanish resident company who has a substantial shareholding in the capital of a Spanish company is entitled to a double tax relief whereby dividends distributed by the latter are not subject to tax in the hands of the recipient, nor are they subject to any form of WHT. In order to enjoy from this tax benefit, the corporate shareholder must hold a stake of at least 5% for an uninterrupted period of 1 year.
Taking into account this domestic provision, the ECJ has ruled against the different treatment which is provided for corporate shareholders resident within the EU, who would only enjoy from this tax benefit if they complied with the provisions of the so-called “Parent- Subsidiary Directive” (20% shareholding until 31/12/2006, 15% from 1 January 2007 and 10% on 1 January 2009 onwards). Corporate shareholders holding more than 5% but less that the percentages imposed in the said Directive would have then suffered the WHT rates imposed in the correspondent Double Tax Treaties (10%-15% in general; as an exception, under the Spanish-French Treaty, a 0% rate would apply for corporate shareholders with a stake of 10% or more).
The ECJ understands, on the one hand, that the difference in treatment to which Spain subjects the dividends paid to companies resident in other Member States, as compared with dividends paid to companies resident in Spain cannot be justified by the difference in the situation of those companies and, on the other, that the disadvantages arising from that difference in treatment is not neutralized by the Double Tax Treaties concluded by Spain (since double tax relief cannot be granted in the country of residence of the shareholder if dividends are not sufficiently taxed in that other Member State). The conclusion of the ECJ is that Spain has failed to fulfill its obligations under article 56(1) EC.
All those corporate investors who suffered, during the past 4 years, a Spanish WHT on dividends paid by the Spanish companies where they held a stake of at least 5%, are now advised to claim for the refund of the Spanish WHT.
For further information on this French tax analysis and thought, please contact:
Santiago Díez Partner CMS Albiñana & Suárez de Lezo E [email protected]
Felipe Alonso Partner CMS Albiñana & Suárez de Lezo E [email protected]