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May 25, 2022

Spanish National High Court issues new favorable decision on reclaims by non-Spanish sovereign funds

The Spanish National High Court (Audiencia Nacional), in its Judgment dated 28 April 2022, recently published, has confirmed the right of a sovereign fund to obtain the refund of dividend withholding taxes (DWHT) imposed as Nonresident Income Tax (NRIT) derived from its investments in Spain.

The taxpayer in this case was a non-European sovereign fund investing in Spain through two different investment vehicles, one of the vehicles was comparable to the Spanish Fund for Foreign Investment (FIEX) and the other one comparable to the Fund to Support the Diversification of the Fishing and Aquaculture Industry (FADSPA), that are public bodies.

While the Spanish tax rules provide for a subjective exemption for the Spanish investment vehicles of both FIEX and FASDPA, there is no such exemption for comparable non-Spanish investment vehicles.

The National High Court confirmed that the applicable Spanish tax rules infringe the free movement of capital principle under article 63 of the Treaty on the Functioning of the European Union (TFEU).

As a result, the Spanish National High Court confirmed the non-Spanish sovereign fund’s right to the refund of excess taxes imposed as well as delay interest.

This favorable decision entails the acceptance of comparability of two new sovereign funds, after the Spanish Supreme Court decisions on 24 February 2021 and 2 March 2021 related to Norwegian funds comparable to the Spanish Central Bank’s FX reserves and to the fund managing the Spanish Social Security. EY Spain assisted the sovereign fund in these 2021 cases throughout the litigation procedure, including before the National High Court and the Supreme Court.


This decision represents another favorable development in the interpretation of the Spanish tax legislation in light of the European Law, especially with respect to the free movement of capital, in the area of reclaims filed by non-Spanish funds.

In particular, this decision, which replicates the doctrine of the Supreme Court, reiterates that sovereign funds investing in Spain have the right to the refund of Spanish DWHT.

The Decision also follows the Supreme Court doctrine that the right for the refunds of DWHT does not depend on the funds’ organization and structure, to the extent that they act as private investing agents in the market and are comparable to any of the bodies set forth by the Spanish Corporate Income Tax rules. A case-by-case analysis is required in order to assess the viability of such reclaims.

Its indirect application to other items of income may also be considered.


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