The Supreme Court ruled this Wednesday against the Treasury and forces the Administration to prove that the taxpayer does not have valid reasons to request the dividend exemption. The Contentious-Administrative Chamber established yesterday as a new doctrine that the burden of proof of the abuse that prevents taking advantage of the exemption of dividends in the Non-Resident Income Tax (IRNR) corresponds to the Ministry of Finance itself and not to the taxpayer. In other words, it will be the tax administration that must prove that there are no valid economic reasons to deny the exemption of dividends that come out of Spain. The High Court, specifically, thus applies the jurisprudence of the Court of Justice of the European Union (CJEU), established in various judgments of 2017 and 2019, and modifies and adjusts its doctrine to it in relation to the interpretation of the anti-abuse clause contained in the IRNR law.
The General Administration of the State raised in an appeal that the burden of proof of the application of the exemption included in article 14.1.h of the law of said tax, and consequently the demonstration that the anti-abuse clause is not applicable, corresponded to the taxpayer, who benefits from it. However, in a clear endorsement of the taxpayer, the Supreme Court has established that this task corresponds exclusively to the Tax Administration, something that the National Court had previously stated.
The ruling comes “from a matter in which the National Court issued an appraisal sentence,” explains Esaú Alarcón, Gibernau’s lawyer and member of the Spanish Association of Tax Advisors (Aedaf). In other words, “the Supreme Court follows the criteria defended by the Court and dismisses the appeal filed by the State’s lawyer.”
Indeed, in the sentence that establishes this new and definitive criterion, the magistrates throw down the argument of the General State Administration against a sentence of the National Court of May 21, 2021. This ruling in question gave the reason to a company that, in February 2010, did not make an IRNR withholding for a dividend distribution of 7 million euros to its parent company resident in Luxembourg, considering that it was exempt.
The Tax Agency, after an inspection, established in March 2014 a liquidation of said company with a debt to be paid for an amount of 838,753.43 euros, of which 700,000 euros corresponded to quota and 138,753.43 euros to late-payment interest, at to understand that the aforementioned exemption was not applicable because the taxpaying entity had not demonstrated the existence of valid economic reasons for the constitution of the Luxembourg parent entity.
The National Court, in the sentence now confirmed, considered that the Treasury incurred in a presumption of exclusively fiscal purpose, violating the doctrine of the CJUE, by reversing the burden of proof against the company’s allegations that it invoked the existence of economic motives. He added that it is the Tax Administration that must justify the budgets for the application of the anti-abuse clause, with greater proof being required of the latter.
Specifically, the hearing rejected that the Tax Agency may refrain from carrying out any minimum probative activity to reject the existence of a valid economic reason. In other words, it is established that the Tax Administration cannot assume that the only reason that justifies the establishment of an intermediate structure in a country other than that of the final investment is always tax savings.
The Supreme Court, after making an exhaustive review of the jurisprudence of the CJEU, “agrees with the Court, considering that in any case it corresponds to the Tax Administration, and not to the taxpayer, to prove the assumptions of application of the anti-abuse clause resorting to the different means of information provided for in the Double Taxation Agreements or the Information Exchange Directive (DAC)”, as explained by the High Court in a statement.
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