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August 21, 2023

Spanish Supreme Court issues taxpayer-favorable decisions on domestic dividend withholding exemption with respect to EU holding structures

  • In three recent judgments, the Spanish Supreme Court has ruled on the application of the dividend withholding tax exemption under the European Union Parent Subsidiary Directive and the specific anti-abuse rule.
  • The Spanish Supreme Court affirmed favorable decisions by the National High Court that overturned decisions of the Spanish tax authorities, which had inferred a general presumption of abuse.
  • The Spanish Supreme Court concluded that Spanish tax authorities should objectively determine whether elements constituting alleged abusive practices exist with regard to each case.

Executive summary

The Spanish Supreme Court has recently issued three judgments on the application of the dividend withholding tax (DWHT) exemption under the European Union Parent Subsidiary Directive (EU PSD),1 the specific anti-abuse rule and the beneficial-ownership requirement related to an EU holding structure.

This new case law affirms several favorable decisions by the Spanish National High Court overturning the criteria of the Spanish tax authorities (See EY Global Tax Alert, Spanish National High Court issues favorable decisions with respect to international holding structures after ECJ Danish cases, dated 4 August 2021).

Detailed discussion


Spanish implementation of the EU PSD included a specific anti-abuse rule with certain safe harbors, one of them being that the EU parent entity had to prove that it had been established based on a sound business purpose and not to unfairly benefit from the DWHT exemption. Traditionally, the Spanish tax authorities and tax courts have narrowly interpreted the business purpose required to qualify for the Spanish DWHT exemption; this is generally also the case upon tax audit.

Specifically, the Spanish tax authorities and Spanish administrative courts have challenged structures by asserting that the beneficial-ownership clause is a separate requirement or an independent anti-abuse rule, although it is not expressly included in the Spanish tax law. General anti-avoidance rules can be found in Spanish tax law that require the Spanish tax authorities to follow a specific procedure. Spanish tax authorities and administrative courts have also cited a Danish case2 to bolster their approach.

Spanish Supreme Court judgments

The three Spanish Supreme Court judgments overturn the position held by the Spanish tax authorities and tax courts and confirm the Spanish National High Court decisions, as follows:

Judgments dated 8 June 20233 and 22 June 2023.4 Following a European Court of Justice (ECJ) decision on the burden of proof, the Spanish Supreme Court affirmed the position of the Spanish National High Court,5 rejecting that a general presumption of abuse exists and stating that the Spanish tax authorities should objectively determine in each case whether elements constituting an allegedly abusive practice exist.

Most notably, this judgment refers to the ECJ judgment in a Danish case2 regarding the DWHT exemption and mentions other ECJ case law (cases C-504/16 and C-613/16, 20 December 2017, and case C-6/16, dated 7 September 2017) suggesting that the existence of an anti-abuse rule may not cause the burden of proof to shift to the taxpayer. Rather, this burden is on the Spanish tax authorities, which must prove the existence of an abusive practice.

See EY Global Tax Alert, Spanish Supreme Court affirms judgment holding domestic withholding tax exemption applies to EU shareholder dividends, dated 30 June 2023).

Judgment dated 21 June 2023.6 This judgment provides an example of a bona fide EU holding structure; based on the particular circumstances of the case, the Spanish Supreme Court held that there were valid business reasons for the incorporation of the EU holding company.

The Spanish Supreme Court decision affirmed the Spanish National High Court decision,7 which concluded that for the Spanish tax authorities to treat a fact pattern as an abusive practice, they must prove: (i) an objective factor showing that, despite complying with the formal requirements to apply the EU exemption, the aim of this EU rule — to facilitate intra-EU trade — is not achieved; and (ii) a subjective factor, showing the taxpayer's intention (based on an examination of all facts and circumstances) to obtain a tax advantage by creating an artificial structure that fulfills the formal requirements to obtain an undue tax benefit. In this regard, any indicia need to be objective and consistent with the fact pattern.


This case law follows the principles of the ECJ cases on the burden of proof and the objective and subjective factors to be considered to show the existence of abuse or lack thereof, thus amending the tax authority's position.

Notwithstanding these court rulings, the use of EU holding companies remains a priority issue of tax audits, where the tax authorities may seek to challenge whether these are genuine bona fide structures for investments in Spain. It is therefore key that multinational groups review their investment structures to assess potential risks, especially considering that EU holding structures will continue to be under scrutiny by the Spanish Tax Authorities.

International EU holding structures should be reviewed, and groups should adopt a consistent "audit-ready" approach to ensure they can adequately evidence all business and commercial objectives of their structures. Preparing contemporaneous support documentation and defense files is strongly recommended.


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

Ernst & Young Abogados, Madrid

Ernst & Young LLP, Spanish Tax Desk, New York

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor


1 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

2 ECJ judgement dated 26 February 2019, C-116/16 and C-117/16.

3 Spanish Supreme Court judgement dated 8 June 2023, STS 2652/2023.

4 Spanish Supreme Court judgement dated 22 June 2023, STS 2806/2023.

5 Spanish National High Court decisions dated 10 June 2021, SAN 3390/2021, and 21 May 2021, SAN 2467/2021.

6 Spanish Supreme Court judgement dated 21 June 2023, STS 2881/2023.

7 Spanish National High Court decision dated 31 May 2021, SAN 3097/2021.