The Spanish Tax Authorities (STA) recently published a binding tax ruling containing their interpretation of the requirements imposed to qualify for the withholding tax (WHT) exemption as provided under the European Union (EU) Parent-Subsidiary Directive (PSD) (as transposed by Spain into its domestic tax law) on dividends distributed by Spanish companies to shareholders resident in other EU Member States. The Spanish WHT exemption provision includes an anti-abuse rule which requires that, when the majority of the voting rights of the EU parent entity are directly or indirectly held by individuals or entities that are not tax resident within the EU, the incorporation and operation of the EU shareholder must be grounded on sound economic purposes and business reasons. This anti-abuse rule was implemented in the last Spanish major tax reform (effective January 1, 2015) and this binding ruling is the first one addressing the new wording of the law.

A Tax Alert prepared by EY's Global Tax Desk Network, and attached below, provides additional details.

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ATTACHMENT

Full text of Tax Alert 2016-1769