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March 26, 2021

Spanish Supreme Court issues favorable decisions on reclaims by non-Spanish sovereign funds

The Spanish Supreme Court (Tribunal Supremo), in two recently published Judgments (the Decisions), dated 24 February 2021 and 2 March 2021, has confirmed the right of a sovereign fund to obtain the refund of dividend withholding taxes (DWHT) imposed under the Nonresident Income Tax (NRIT) on its investments in Spain.

The Supreme Court has confirmed the decision of the lower courts, Spanish National High Court (Audiencia Nacional), in this regard.

The taxpayer in these cases was a non-European sovereign fund investing in Spain through two different investment vehicles, one of them comparable to the Spanish Central Bank’s FX reserves and the other one comparable to the fund managing the Spanish Social Security.

While the Spanish tax rules provide for a subjective exemption for the Spanish Central Bank’s and the Social Security’s investment vehicles, there is no such exemption for comparable non-Spanish investment vehicles.

The Supreme Court confirmed that the applicable Spanish tax rules infringe the free movement of capital provided by Article 63 of the Treaty on the Functioning of the European Union.

As a result, the Spanish Supreme Court confirmed the non-Spanish sovereign fund’s right to the refund of excess taxes imposed and any related delay interest.

EY Spain assisted the sovereign fund in these milestone cases throughout the litigation procedure, including before the National High Court and the Supreme Court.


These decisions conclude another favorable step in the interpretation of the Spanish tax legislation in light of EU freedoms, especially the free movement of capital, in the area of reclaims filed by non-Spanish funds.

In particular, the doctrine of the Supreme Court has great relevance in the area of sovereign funds investing in Spain, as it confirms their right to the refund of DWHT.

The Decisions will have a decisive effect on pending appeals and on the applicable tax treatment on dividends obtained by sovereign funds investing in Spain, irrespective of their organization and structure, to the extent that they act as private investing agents in the market and are comparable to any of the bodies provided by the Spanish Corporate Income Tax rules. A case-by-case comparability analysis is required in order to assess the viability of such reclaims.

The indirect application of these Decisions and their reasoning to other items of income may also be explored.

EY Spain has the experience to assist in the review of current reclaim opportunities and assist taxpayers in the conversations with sovereign funds and financial parties to operationalize the outcome of this judgment.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP (United States), Spanish Tax Desk, New York