Spanish Supreme CourtIn a recent Court resolution, the Spanish Supreme Court (TS) has modified its criterion and now determines that the Spanish tax authorities must prove that there are no economic reasons or that there are clues of tax fraud or abuse in the context of the Parent-Subsidiary Directive application.

Shifting the burden of proof to the taxpayer is against the EU Law and would imply establishing a tax measure of general application that would automatically prevent a certain category of taxpayers from enjoying a tax advantage.

  • In the analysed case, the Spanish tax authorities had denied the Non-residents income tax exemption on the profit distribution made by a Spanish-resident company to its parent company resident in a Member State, Luxembourg, for not having proven the existence of valid economic reasons for the setting up of such an intermediary entity.

    The tax auditor had considered that the company owning the Spanish resident entity as well as the parent company of the former, ultimately owning the Spanish entity, both tax residents in Luxembourg, did not have a real business activity. It was also considered that there were no economic reasons but tax reasons to set up different companies in the EU, depending on the Canadian parent company, as the ultimate owner of the group was a Canadian Fund.

  • The TS embraces the thesis of the EU Court of Justice on the theory of abuse developed by European Law, according to which:
    • The fact that certain companies established in the EU are directly or indirectly controlled by entities resident in a third country does not determine, per se, that there is a purely artificial arrangement, with no real substance, created exclusively with the purpose of benefiting from a tax advantage.
    • The Parent–Subsidiary Directive does not contain any requirements in relation to the economic activity of the companies that are within its scope of application or with regards to the number of revenues deriving from their economic activities.
    • The EU Court of Justice resolved against the establishment of a tax measure of general application that automatically prevents certain categories of taxpayers from the application of a tax advantage, without any proof or tax fraud indication as it considered that this would exceed what is needed to avoid fraud or abuse.
  • The TS resolves that the burden of proof of the underlying business reasons had been shifted onto the taxpayer, which is against the European Union Law given that the Spanish tax authorities and not the taxpayer must prove the existence of the premises to apply the anti-abuse clause.

Publicado el 07-2023 por PBS