A recent binding tax ruling recognised that the historical background of a multinational group is a key factor in considering whether a non-EU ultimate parent should trigger the anti-abuse rule which applies to exemption from dividend withholding tax.

In a nutshell, the Spanish Non Resident Income Tax Law (NRIT), provides for a standard tax rate of 21 percent on dividend distributions. This standard 21 percent rate may be reduced as a consequence of the application of a tax treaty.

Moreover, under the Spanish law implementing the provisions of the EU Parent-Subsidiary Directive, dividends paid to qualifying parent companies in other EU Member States are exempt from withholding tax.

However, anti-abuse provisions prevent the application of the exemption in the event the ultimate parent company to which the dividend is paid is resident outside the European Union.

There are certain exclusions from the anti-abuse provisions for example where the EU company is effectively managing the Spanish subsidiary or there are valid economic reasons for the investment to take place from the EU company. 

Based on this legal framework, the following question was put to the Spanish Tax Office: whether a US company holding a stake of 100 percent in a Swedish company which holds a stake of 100 percent in a Spanish company can benefit or not from the WHT exemption given by NRIT for dividend payments.

The multinational group highlighted its origins in 1934 as a listed company in Sweden and its subsequent acquisition by an American group in 2011.

The acquisition by the American group took place after the Spanish and Swedish companies started carrying out business activities, and the Spanish Tax Office understands that there is a valid economic reason. In summary, the binding tax ruling clarifies the anti-abuse clause as not having effect in a scenario where the WHT exemption is fully applicable based on valid economic reasons because of the group's historical background.