Spain: Implications of the CJEU Ruling on Withholding Tax for Non-Resident Companies

Overview of the CJEU Decision

On 19 December 2024, the Court of Justice of the European Union (CJEU) delivered a significant judgment in Case C-601/23, Credit Suisse Securities (Europe) Ltd v Diputación Foral de Bizkaia. The case addressed the differential treatment of dividend withholding tax (WHT) between resident and non-resident companies in Spain, particularly in the Basque province of Bizkaia.

The CJEU found that Spanish tax legislation, which allows resident companies to offset WHT against corporate tax liabilities or claim refunds in loss-making years, while denying similar relief to non-resident companies, contravenes Article 63 of the Treaty on the Functioning of the European Union (TFEU) concerning the free movement of capital .

Key Findings of the Court

• Discriminatory Treatment: The court determined that the inability of non-resident companies to reclaim WHT in loss-making years, unlike their resident counterparts, constitutes discriminatory treatment.
• Restriction on Capital Movement: Such differential treatment was deemed a restriction on the free movement of capital, as it could deter non-resident companies from investing in Spanish entities.
• Lack of Justification: The court rejected arguments that the differential treatment was justified by the need to ensure effective tax collection or prevent tax avoidance, stating that these concerns did not warrant the restriction imposed .

Broader Implications

While the case specifically addressed dividends, the principles established may extend to other forms of income subject to WHT, such as interest and royalties. Non-resident companies that have incurred WHT on such income while in a loss-making position may have grounds to seek refunds.

The ruling underscores the importance of equitable tax treatment for resident and non-resident entities within the EU. It may prompt other Member States to review and amend their tax laws to ensure compliance with EU principles.

How GlobeRefund Can Assist

Navigating the complexities of international tax law and reclaiming undue withholding taxes can be challenging. GlobeRefund specializes in assisting companies with the recovery of cross-border withholding taxes. Our expertise ensures that clients can effectively leverage legal precedents, such as the CJEU's recent ruling, to reclaim taxes and optimize their international investment returns.