Does the treaty rate truly cap the foreign tax credit? The Madrid high court says no.

The Madrid High Court (Judgment nº 30/2026, 26 January 2026) examined a 2020 Personal Income Tax assessment issued to a Spanish resident individual who received dividend income from several foreign jurisdictions (United States, Germany, Switzerland, the Netherlands, France, among others) which had been subject to withholding tax at a rate higher than that established in the applicable Double Tax Treaties (DTT).

It should be recalled that, under the special Beckham regime, Personal Income Tax taxpayers cannot obtain a Spanish tax residence certificate for treaty application purposes and therefore cannot invoke the treaty limits.

The taxpayer claimed an international double tax credit for the full amount of foreign withholding tax actually paid abroad.

The Spanish Tax Authorities (STA) rejected the deduction, limiting the credit to the maximum withholding tax permitted under the applicable DTTs (generally 15% of the gross dividend). Any excess tax withheld abroad, in the STA’s view, must be reclaimed directly by the taxpayer from the foreign tax authority.

Article 80 of the Spanish Personal Income Tax Law (PIT Law 35/2006) governs the foreign tax credit, allowing a deduction for the lower of: (i) the effective foreign tax paid, or (ii) the Spanish average tax rate applied to the taxable base generated abroad.

Article 5 of the Spanish PIT Law clarifies that these rules operate without prejudice to international treaties.

The taxpayer argued that neither the domestic law nor the treaties require limiting the credit to the treaty ceiling where the actual withholding exceeds 15%, and therefore the full foreign tax paid should be creditable.

COURT CONCLUSIONS

The Madrid High Court emphasised that the purpose of the international double‑tax credit is to prevent the economic double taxation of income obtained abroad by a Spanish resident taxpayer, and that Article 80 of the PIT Law only requires that the income has been obtained and taxed abroad, without imposing a treaty‑based limit.

The Court stressed that disagreements between States regarding the correct interpretation or application of a Double Tax Treaty cannot be imposed on the taxpayer, who is not responsible for seeking refunds abroad. The expression “effective amount paid abroad” must be determined in accordance with the law of the source State, not Spanish law, and must be compared against the statutory limitations of Article 80, not against the treaty ceiling.

As a result, the Court found no conflict between the PIT Law and the Double Tax Treaties, holding that the taxpayer could credit the full foreign tax paid, and that the 15% treaty limit did not restrict the credit.

This development is particularly relevant where individuals under the Beckham regime receive employment income that has been subject to withholding in the source State despite the fact that such withholding should not have applied under the relevant DTT and the taxpayer seeks to claim the foreign tax credit in Spain.

Each case must be examined individually to determine whether the income category is one for which the treaty actually limits source State taxation.

Above all, it is important not to overlook a principle often forgotten in international practice: disputes between tax authorities over where income should be taxed cannot be shifted onto the individual taxpayer.

We will need to closely monitor how the Supreme Court ultimately rules on this matter, as well as whether other Regional High Courts adopt the same position.

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The case concerns royalty payments made by the Spanish VELCRO subsidiary, to VELCRO HOLDING BV (Dutch Sub-holding) resident in the Netherlands, while the ultimate owner of the IP was based in Curaçao (Curaçao holding).

The group’s licensing setup channeled royalties through the Dutch entity: first under a structure where the Curaçao holding licensed directly to Spain with the Dutch sub-holding company managing European rights. Based on this framework, the Spanish subsidiary initially applied the 6% reduced withholding rate under Article 12 of the Spain–Netherlands DTT, arguing that the Treaty should govern the payments.

Later (from 1 March 2014), under a new licence–sublicence chain in which the Dutch company formally sublicensed the IP to the Spanish subsidiary, and a letter of understanding requiring the Spanish subsidiary to centralize the group’s royalty payments, no withholding tax applied under the EU Interest & Royalties Directive.

However, the Spanish Tax Administration denied the relief concluding that the Dutch entity lacked genuine economic substance and acted merely as a conduit. The funds were immediately transferred to the non‑EU parent company (Curaçao holding), showing that the Dutch Sub-holding was not the beneficial owner. Consequently, the exemption was rejected, and the full domestic withholding tax was applied (24,75%).

• The exemption was rejected because the Dutch holding lacked genuine substance, operating without its own staff, assets, or decision‑making capacity.

• The Dutch entity could not qualify as the beneficial owner, as the income was automatically upstreamed to the non‑EU parent and the holding had no capacity to manage, retain, or control the funds.

• With no decision‑making functions, economic activity, or risk assumption, its presence in the Netherlands was purely instrumental.

• The Supreme Court concludes that the Dutch sub-holding company lacked genuine substance, fully aligning with the standards set by the CJEU Danish Cases

• had no employees or its own operational resources,
• assumed no economic risks and had no decision making power over the funds received,
• carried out no relevant functions, and
• operated solely as a conduit, passing income to entities located in third countries.

On this basis, it could not be regarded as the beneficial owner, a material requirement for applying the Interest & Royalties Directive.

• Once the UE Directive’s exemption failed, the Supreme Court held that the taxpayer cannot rely on the Tax Treaty to obtain a reduced withholding rate.

The reasoning is clear: EU law prevails, and allowing the DTT to grant a reduced rate where the Directive denies relief would undermine the primacy and effectiveness of EU law.

Best practice calls for a review of international structures, the assurance of genuine substance, and the verification of beneficial‑ownership requirements; the consequences are, in practical terms, “no half measures.” If the EU exemption does not apply, the tax cost can escalate materially—not only is the 0% rate unavailable, but the group also cannot rely on the Tax Treaty to limit withholding.

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FORM 240

Notification of the Constituent Entity Responsible for Filing the GloBE Information Return. Its main purpose is to inform the Tax Authorities which Constituent Entity is responsible for submitting the GloBE Information Return (“GIR”).

All Constituent Entities of the group located in Spain must file this form, although this obligation will be deemed to be fulfilled by submitting a single notification that includes information on all group entities located in Spain.

Filing deadlines for Form 240:

» Transition year (2024): In general, before the three months prior to the deadline for filing the GIR (Form 241). However, where the return relates to tax periods ending before 31 March 2025, the return must be filed within the two months preceding 30 June 2026.

If the fiscal year coincides with the calendar year (2024): from 30 April to 30 June 2026.

» General deadline (2025): before the three months prior to the deadline for filing the GIR (Form 241).

If the fiscal year coincides with the calendar year (2025): until 30 December 2026.

FORM 241

GloBE Information Return (“GIR”). This form includes the essential data for determining and verifying the Top-Up Tax.

Generally, only one GIR is filed per Group, and the filing obligation lies with the Ultimate Parent Entity (“UPE”) or another entity designated by the group. If the obligated entity is not located in Spain, the group will not be required to file this form in Spain.

Filing deadlines for Form 241:

» Transition year (2024): within the two months prior to the last day of the 18th month following the end of the fiscal year. [1]

If the fiscal year coincides with the calendar year (2024): from 30 April to 30 June 2026.

» General deadline (2025): until the last day of the 15th month following the end of the fiscal year.

If the fiscal year coincides with the calendar year (2025): until 31 March 2027.

FORM 242

Top-Up Tax Self-Assessment. This form fulfils the material obligation of each Constituent Entity to settle the Top-Up Tax.

The obligation to file this return lies with each Constituent Entity of the group located in Spain, which can be filed either by the taxpayer or by its substitute.

Filing deadlines for Form 242:

» Transition year (2024): within the 25 calendar days following the 18th month after the end of the fiscal year. [2]

If the fiscal year coincides with the calendar year (2024): from 1 to 25 July 2026.

» General deadline (2025): within the 25 calendar days following the 15th month after the end of the fiscal year.

If the fiscal year coincides with the calendar year (2025): from 1 to 25 April 2027.

_______________

1. When the return relates to tax periods ending before 31 March 2025, the return must be filed within the two months prior to 30 June 2026.

2. In any case, no Form 242 may be filed before 30 June 2026, and the 25-calendar-day period shall be counted from that date.

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However, Royal Decree-Law 15/2025, approved on December 2, 2025, postpones its implementation until 2027, without altering the substantive content or scope of application of the regulation. Specifically, Corporate Income Tax payers must comply with the regulation by January 1, 2027, while other users (Personal Income Tax payers engaged in economic activities and Non-Resident Income Tax payers operating through Permanent Establishments) must comply by July 1, 2027.

It is important to note that this Royal Decree-Law requires ratification by the Spanish Congress within 30 days of its approval.

Furthermore, since the Veri*Factu Regulation excludes taxpayers under the Immediate Supply of Information (SII) regime, many have opted into this regime prior to January 1, 2026. It should be noted that, under current legislation, this choice cannot be reversed, as the regime must be applied for a full calendar year. Nevertheless, attention should be paid to any potential legislative changes that may allow for reversal or to the evaluation of alternative options.

If you would like to learn more about how Veri*Factu and electronic invoicing will impact your billing processes, we invite you to read our article at the following link [Article].

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The Spanish Supreme Court has confirmed that the Wealth Tax cap, traditionally reserved for Spanish tax residents, must also apply to non-residents.

Under Spanish law, in order to avoid the confiscatory effects of the Wealth Tax, a combined limit is set in relation to the Personal Income Tax. Specifically, the total amount payable for Wealth Tax and Personal Income Tax may not exceed 60% of the Personal Income Tax taxable bases. If this threshold is exceeded, the Wealth Tax liability must be reduced accordingly, provided that the reduction does not exceed 80%.

This limitation, however, has until now applied only to taxpayers subject to personal liability, that is, individuals who have their tax residence in Spain.

In its judgment of 29 October 2025, the Spanish Supreme Court, , ruled that habitual residence, whether in Spain or abroad, does not justify the unequal treatment that prevents non-residents to apply the cap on the total tax liability provided for in Article 31 of the Wealth Tax Act. The Court found that this differential treatment is discriminatory and lacks objective justification.

The ruling concerned the case of an individual with tax residence in Belgium who was subject to Spanish Wealth Tax under real liability, as the owner of assets located in Spain. The taxpayer argued that denying the combined tax limit constituted discriminatory treatment and infringed the principle of free movement of capital established under the EU Treaties.

In its reasoning, the Court recalled that, pursuant to Article 63 TFEU, paragraph 1, all restrictions on the movement of capital between Member States and between Member States and third countries are prohibited. In this regard, the case law of the Court of Justice of the European Union has consistently held that a restriction exists whenever national tax legislation makes cross-border investment less attractive compared to a purely domestic situation.

Although the free movement of capital allows for limited exceptions, such exceptions must be interpreted strictly and may only be invoked where the situations being compared are genuinely non-comparable or where the restriction is justified by overriding reasons of public interest. According to the Supreme Court, none of these exceptions were met in the present case.

The judgment emphasizes that the Wealth Tax is levied on the ownership of assets and rights. Consequently, it is irrelevant whether taxation arises on a real or personal basis. What matters is that we are dealing with a comparable situation, where both the domestic resident and the EU resident are taxed on the same assets and are in the same position of income and wealth accumulation. Whether the ownership extends to the entire estate or only part of it does not affect the definition of the taxpayer, given that the taxable event is the ownership of assets, whether of the entire estate or a portion thereof. The distinction based solely on tax residence therefore results in unjustified unequal treatment.

The Court also referred to Council Directive 2011/16/EU on administrative cooperation in the tax matters, which may be invoked by a Member State to obtain the information necessary for the correct assessment of taxes covered by that Directive. Additionally, the Court cited the Spain-Belgium Double Tax Treaty, together with its Protocol, of 2 December 2009, which includes both non-discrimination and information exchange provisions.

In conclusion, the Spanish Supreme Court held that the Wealth Tax cap must also be available to non-residents. This criterion has been confirmed in another recent judgment by the same Supreme Court on 3 November 2025.

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The Veri*Factu Regulation (Royal Decree 1007/2023, of December 5^th) requires producers, distributors and users of invoicing systems and software to guarantee the integrity, preservation, accessibility, readability, traceability and immutability of invoicing records, with no omissions or unauthorized alterations that are not properly logged.

This means that every time an invoice is issued, Invoicing IT Systems (SIF) must generate and store a detailed, tamper-proof invoicing record that cannot be modified later without leaving an audit trail. Specifically, these systems must meet the following requirements:

• Integrity: Records must be immutable and linked to an electronically signed digital fingerprint (hash).
• Preservation: Records must be stored for at least 6 years in an accessible and readable format.
• Accessibility: Issued invoices must include a QR code that allows recipients to verify the invoice’s data via the Spanish Tax Agency’s (STA) electronic portal. Furthermore, although SIFs must be technically capable of instantly submitting these records to the STA (this is strictly what Veri*Factu refers to), the decision to do so will rest with the users themselves. If they choose not to, the STA may request copies of the invoicing records in electronic format.

This regulation affects two groups:

1. Software manufacturers, developers, and distributors of accounting and invoicing programs, who must ensure that their products comply with these requirements from July 28^th, 2025.
2. Businesses with a registered office in Spain (except those based in the Basque Country or Navarre), as well as non-residents operating in Spain through a Permanent Establishment. In both cases, when issuing invoices (even if it’s only for part of their activity) they must use a SIF compliant with the new regulation.

To comply, businesses must verify that their invoicing software visibly displays a compliance declaration from the software producer before the following effective dates:

• January 1^st, 2026 for Corporate Income Tax payers.
• July 1^st, 2026 for all other users (Personal Income Tax payers carrying out economic activities, and Non-Resident Income Tax payers obtaining income through Permanent Establishments).

Exceptionally, taxpayers who already keep their VAT ledgers, either mandatorily or voluntarily, through the Immediate Supply of Information system (SII); those under the Special VAT Scheme for Retailers (“Recargo de Equivalencia”) or the Simplified VAT Scheme (modules); and individuals who do not carry out any economic activity, may continue using their current programs without adapting them to the new requirements.

Finally, it is important to differentiate Veri*Factu from Electronic Invoicing. Electronic Invoicing refers to the obligation to issue, send, and receive invoices in electronic format in commercial transactions between businesses and professionals (B2B). It should be noted that an electronic invoice is not a Word or PDF document sent electronically; it is a structured document in one of the accepted formats: UBL, CII (Cross Industry Invoice), Facturae, or Edifact. At present, these requirements do not apply to intra-community transactions invoicing.

As of today, the implementing regulation is still pending publication. Once published, the deadlines for compliance will depend on the size of the business:

• Businesses and professionals with annual turnover exceeding 8 million euros will be required to issue electronic invoices in B2B transactions within one year of the regulation’s publication.
• All other businesses and professionals (with annual turnover under 8 million euros) will have to comply with this obligation within two years from the regulation’s approval.

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The event will be held in a roundtable format, in Spanish language, and will be attended by tax experts from Latin America, Spain and Portugal. It will be a unique opportunity to address key tax challenges and share best practices in the tax arena, providing an essential framework for successful international transactions in today’s global business environment.

Agenda

Should you have any questions or comments, please contact: Ignasi del Río (ignasidelrio@arcoabogados.es)

Register here: Registration | Key tax aspects in transactions between Latin America, Spain and Portugal: recent experiences and case studies (invitario.com)

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The Tax on the Value of Electricity Production is an environmental, direct and real tax levied on the activities of electricity production and supply.

Following the suspension of the tax from the third quarter of 2021 to 2023, through Royal Decree-Law 8/2023 of 27 December, the Council of Ministers agreed to its progressive reactivation for 2024.

The IVPEE is a direct tax levied on the activities of the production and incorporation into the electricity system of electrical energy for each installation located in Spanish territory, during the tax period of the calendar year.

For the 2024 tax year, companies or persons owning installations that generate or distribute electrical energy must self-assess the tax, taking into account the following specifities:

TAXABLE BASE:

• The tax base of this levy is the value of the production of electrical energy, equivalent to the total amount that the taxpayer is entitled to receive for the production and incorporation into the electricity system of electrical energy, for each installation, minus half of the remuneration corresponding to the electricity incorporated into the system during the first calendar quarter, and minus a quarter of the remuneration corresponding to the electricity incorporated into the system during the second calendar quarter.

TAX RATE:

• The tax rate of 7% is upheld.

PAYMENT BY INSTALMENT:

• Payment by instalment for the 1st quarter (to be submitted between 1-20 May 2024): this amount is the result of applying the tax rate to the value of the electrical energy production during the first 3 months of the year, reduced by half of the stated remunerations.

• Payment by instalments for the 2nd quarter (to be submitted between 1-20 September 2024): this is calculated on the basis of the value of electrical energy production in the first 6 months of the year, minus half of the remuneration for the first quarter and a quarter of the remuneration for the second quarter. After applying the tax rate, the amount paid for the 1st quarter instalment is deducted.

• Payment by instalment for the 3rd and 4th quarter (to be submitted between 1-20 November 2024 and 1-20 February 2025, respectively): the payment by instalment will be calculated based on the value of energy production from the beginning of the year until the end of the quarter (9 months in the case of the 3rd quarter and 12 months in the case of the 4th quarter). In both cases, half of the remunerations of the first quarter and a quarter of the remunerations of the second quarter must be deducted. After applying the tax rate, the amount of the instalments previously paid is deducted.

If the value of electrical energy production, including all installations, has not exceeded €500,000 in the immediately preceding calendar year, a one-off payment must be made during the first 20 calendar days of November, based on the value of electrical energy production over the first 9 months of the calendar year.

ANNUAL ASSESSMENT:

• As regards formal obligations, the taxpayer is obliged to file an annual self-assessment (form 583) in November of the following year and an informative return (form 591) between 1 and 20 December of the following year. In the case of ceasing the activity before 31 October, the tax is assessed using form 588.

SUMMARY TABLE:

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In this article we explain what the Create and Grow Act consists of: its new requirements and entry into force.

The Spanish 18/2022 Act of 28th September 2022 on the creation and growth of companies (known as the Create and Grow Act) introduces, among other measures, new requirements such as mandatory e-invoicing for all transactions between businesses.

According to the statement of legal grounds for the act, the objective of introducing the use of e-invoices in transactions between businesses (B2B) is to:

• Digitalise business relations.
• Reduce transaction costs.

Encourage transparency in trade and combat late payments in commercial transactions.

When will e-invoicing become mandatory?

Regarding mandatory e-invoicing, the Create and Grow Act will enter into force as follows:

• For businesses with an annual turnover in excess of €8 million, within one year of the act’s implementing regulations entering into force.
• For all other businesses, the transition period will be two years from the approval of said implementing regulations.

A Draft Royal Decree to implement the Create and Grow Act with regard to e-invoicing between businesses was announced by the Spanish Council of State on 30th June 2023 and is currently pending approval by the Spanish cabinet and its publication in the Official State Gazette.

Important points to be taken into consideration:

The obligation of businesses and professionals to issue and deliver an e-invoice for their B2B transactions with regard to which they are required to issue an invoice pursuant to the invoicing regulations. The e-invoices, which must be signed by the issuer using an advanced e-signature, will be identified via a unique code that will comprise the issuer’s tax identification number, the invoice number and series and the issue date.

The public e-invoicing system will comprise the following:

• all private platforms for exchanging e-invoices that comply with the requirements of the Royal Decree;
• the public e-invoicing solution that will be managed by the Spanish tax authority (AEAT).

The public e-invoicing solution (SEFE) will also be the archive for all e-invoices issued, including for invoices that have been issued and received through private platforms.

The obligation is established to report certain invoice statuses, such as the commercial acceptance or refusal of the invoice, which must be dated, and payment. This must take place within four calendar days, excluding weekends and national holidays.

To ensure the interconnection and interoperability of the different invoicing systems, they will be restricted to authorised syntaxes: XML, UBL, EDIFACT and Facturae.

The receivers of e-invoices may not force the issuer to use a predetermined e-invoicing services provider, platform or solution.

The B2B e-invoice will not affect Immediate Information Supply, known in Spain as SII, which means that companies must comply with their e-invoicing obligations or remain in the SII system.

Use of the e-invoice will be limited to clients and suppliers located in Spain or that are VAT registered in Spain.

Company adaptation process.

Until approval and entry into force of the Royal Decree that implements the Create and Grow Act, companies will have a period to prepare and adapt to this regulatory change.

While the details of the Royal Decree are still unknown, it has been announced that there will be several government-approved platforms. These will have to be interconnected so they can work together to facilitate invoice exchanges between clients and suppliers regardless of the platform that each of them chooses to use. Before the upcoming entry into force of the regulations on e-invoicing between companies, it is a good idea to prepare your new invoicing system to be able to adapt to the new legal requirements and avoid the fines established in the new system.

Regarding regional tax authorities.

TicketBAI is a common project between the Basque Country’s three regional tax authorities to fight against tax fraud by monitoring all invoices and receipts issued in the Basque Country.

TicketBAI is applicable to natural and legal persons with their tax residence in the Basque Country that are required to self-assess their personal or corporate income tax.

This system requires companies to use certified digital invoicing systems and to submit their invoice files to the government in accordance with specific requirements. The new system where invoices must be digitally signed prevents these invoices from being manipulated or deleted.

Other approved e-invoicing measures.

In the European Union, the European Commission has published an action plan called VAT in the Digital Age (VIDA), which comprises a set of measures designed to adapt to the current legislative framework surrounding Value Added Tax based on the new economic and digital reality. Like with the Spanish project, the European project is aimed at making a structured e-invoicing format generally applicable to transaction documentation.

The key aim of this proposal is to ensure the European single market operates correctly and to combat tax fraud within the union.

The VIDA plan is also aimed at ensuring that traditional and digital operators are treated equally, in addition to establishing new simplifications designed to lower compliance costs for companies.

Financial assistance to adapt to e-invoicing: Kit Digital Kit Digital is an initiative by the Spanish government for the purpose of subsidising the implementation of the digital solutions available on the market to make significant progress regarding the level of digital maturity.

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The Court, in an appeal ruling, gives its position on the tax treatment that should be given to such dividends in the light of the judgments handed down by the Court of Justice of the European Union (“CJEU”) on 29 February 2019 (Cases C-116/16 and C-117/16), known as the “Danish cases”.

In its ruling, the Supreme Court analyses an issue of evidentiary nature, centred on who must prove that the parent company has been set up for valid economic reasons and on whom the consequences of not proving this fact must fall: the taxpayer or the Tax Administration.

In this respect, Article 14.1.h) of the LIRNR, which is the subject of controversy, includes an anti-abuse clause to prevent taxpayers from using fictitious companies or companies with no real activity outside Spain to which dividends are paid in order to apply the exemption. The provision establishes that “profits distributed by subsidiary companies resident in Spanish territory to their parent companies resident in other Member States of the European Union […]” shall be exempt.

However, the same provision also introduces a series of requirements to avoid abuses in the application of that exemption, namely that both companies be subject to and not exempt from any of the taxes levied on the profits of legal entities in the EU Member States, that the distribution of the profit not be the result of the liquidation of the subsidiary and that both companies take one of the forms provided for in the Annex to the Directive relating to the regime applicable to parent companies and subsidiaries of different Member States.

Thus, the Supreme Court, in order to carry out the stated analysis, breaks down the case law of the CJEU on the Parent-Subsidiary Directive, considering the criterion of the CJEU in its judgments of 7 September 2017 (case C-6/16 Eqiom) and 20 December 2017 (case C-504/16 Deister) to be fully in force. And in line with these judgments, as well as those relating to the Danish cases cited above, contrary to its previous case law, the Supreme Court concludes that the burden of proof of the abuse that rules out this exemption in the IRNR falls on the Tax Administration and not on the taxpayer.

That being said, it is also true that the aforementioned judgment, while clearly determining who bears the burden of proof in this matter, does not clarify or specify anything beyond what the CJEU determined on the relationship between the abuse and the beneficial owner.

At the time, the CJEU established a series of objective and subjective indications or circumstances regarding the existence of this abuse, concluding that, if the beneficial owner of the dividend resides outside the EU, it can be considered an abuse of Law. However, it is open to interpretation whether such abuse lies in the mere fact that the beneficial owner is located outside the EU, and thus the Tax Administration may refuse the exemption, without having to prove or give reasons for such abuse beyond the finding that the beneficial owner is established outside the EU.

Also, neither is the concept of “beneficial owner” clearly defined in European case law.

Therefore, although the Supreme Court determines that the burden of proof of the abuse that eliminates this exemption in the IRNR falls on the Tax Administration and not on the taxpayer, it seems to leave the concepts of “abuse” and “beneficial owner” open to interpretation, which may generate future controversies between Tax Authorities and taxpayers on these matters.

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