Spanish tax law provides that profits of a Controlled Foreign Company (CFC) may be attributed to its shareholders. As a result, the profits of a subsidiary established in a Member State or EU territory qualifying as a tax haven are taxed immediately in the hands of the Spanish parent company as they arise and not after they are distributed. In addition, dividends distributed by these subsidiaries cannot benefit from a tax exemption even when the Spanish parent company holds more than 5 per cent of the shares. This exemption would apply to dividends distributed by subsidiaries located in Spain and other Member States not qualifying as tax havens. According to the Commission, these CFC rules are incompatible with the freedoms provided in the EC Treaty. This case will be referred to the European Court of Justice if Spain does not amend its legislation within two months.