The National High Court in a ruling dated 31 May 2021 confirms when a company can take advantage of the dividend exemption from subsidiary to parent company.

The case consists of a Luxembourg company – fully owned by a Qatar company – who received from one of its subsidiaries, domiciled in Spain, dividends and fees for attending shareholders’ meetings. Said amounts were subject to a retention tax and consequently, the Luxemburg company claimed a rebate of such tax which has denied by the Tax office as it understood that:

(i) The Subsidiary-Parent Company exemption is not applicable since the majority of voting rights are held directly or indirectly by non-EU residents.
(ii) Attendance fees must be classified as dividends as thus the exemption is not applicable.

The company claims that it is does meet one of the following two requirements set by law in the events when the parent company is owned directly or indirectly by a non-EU resident:

(i) The parent company effectively carries out a business directly related to the business carried out by its subsidiary; or
(ii) The parent company proves that it was incorporated due to “economical valid reasons” and not for the sole purpose of taking advantage of the Subsidiary-Parent Company exemption.

Considering the particulars of the case, the National High Court confirms that the Luxembourg Company is a holding company since it manages numerous investments across different countries and its incorporation was not arranged with the sole intent of taking advantage of the dividend exemption.

Lastly, it confirms too that the attendance fees under the Double Taxation Treaty between Spain and Luxembourg must not be considered as dividends, hence article 22 of such treaty is applicable and attendance fees can not be subject to taxation in Spain.