SPAIN Law and Practice Contributed by: Cristina Alba and José María Rodríguez Hernández, act legal
The dispute concerned the withholding tax exemp - tion implementing Directive 2003/49/EC, which elimi - nates source taxation on certain interest and royalty payments between associated companies in different member states. The exemption was denied because the recipient was not the beneficial owner of the income, but the taxpayer tried instead to rely on the exemption under the relevant DTT. The Court held that beneficial ownership is an essen - tial condition not only under the Directive but also within the treaty framework, and that the absence of such status indicated an abusive arrangement. In that context, the primacy of EU law prevented the trea - ty from being deployed as a shield against the EU- law anti-abuse analysis. A taxpayer cannot, in other words, circumvent a European anti-abuse finding by invoking bilateral treaty protection when the underly - ing structure lacks economic substance. This does not appear to be a general demotion of treaties in favour of EU law, but rather a case-specific response to an intra-EU abusive scenario. The ordi - nary rule of treaty prevalence over domestic legislation remains intact. Meanwhile, the practical landscape is shaped not only by formal sources of law but also by interpreta - tive authorities. Binding rulings of the DGT and pub - lished decisions of the TEAC are not, strictly speak - ing, sources of law. Yet in practice they chart the path that tax authorities are likely to follow in audits and disputes. 1.3 OECD Model/United Nations Influence on Treaty Practice Spain’s treaty strategy, in general, is in line with OECD Model Convention, although there are still some older agreements in force that depart from the OECD struc - ture, such as the maritime treaty with Venezuela or the historic inheritance treaty with Greece. In recent years, however, Spain has moved decisively in step with the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. If earlier decades were con - cerned with avoiding double taxation, the current focus is on preventing double non-taxation.
Through the Multilateral Instrument (MLI), Spain has woven anti-abuse standards directly into its treaty fabric. This includes the Principal Purpose Test (PPT), as well as updated provisions regarding permanent establishment definitions and Mutual Agreement Pro - cedures (MAP). From a practical standpoint, advisers should always review the MLI positions adopted by both contracting states, as the final outcome depends on the matching of notifications and reservations between treaty partners. 1.4 Multilateral Instrument Spain is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. The country signed the instrument on 7 June 2017, subsequently ratified it, and brought it into force with effect from 1 January 2022. However, Spain made a reservation with respect to Article 35 (7)(a) of the MLI (entry into effect) and opt - ed to apply a procedure whereby the MLI provisions apply to the double tax treaties in question once the other signatories have been notified that Spain has completed the ratification process. Spain has already made the relevant notifications to most of the other signatories. Finally, it is worth noting that Spain has opted to apply the Principal Purpose Test rule to all its double tax treaties. From a practical perspective, during 2022 and 2023 the Spanish Ministry of Finance published “synthetic texts” for several tax treaties affected by the MLI. These documents are not formally consolidated legal texts, but they are widely used in practice because they present the treaty wording together with the rel - evant MLI changes in a single working document. They also include a standard disclaimer confirming that the authentic legal texts remain the treaty and the MLI, while noting that the synthetic text has been pre - pared in co-ordination with the competent authority of the other contracting state and reflects a common understanding of the MLI modifications. They usually also indicate the entry-into-effect dates of the relevant MLI changes. Access to the synthetic texts is avail - able here .
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