IRNR – The burden of proof of abuse in the exemption from the Non-Resident Income Tax corresponds to the Tax Authorities

Oct 24, 2023 | Tax Flash

The Supreme Court, in its Judgment of April 19, 2023, has established as a doctrine that the burden of proof of the abuse that prevents taking advantage of the exemption in the Non-Resident Income Tax (IRNR) corresponds to the Tax Administration.
Let us remember that the non-taxation in the IRNR of the dividends distributed by the subsidiaries resident in Spanish territory to their parent companies resident in other Member States of the EU is not applicable when, according to the wording of art. 14.1.h) of the IRNR Law, most of the voting rights of the parent company are held, directly or indirectly, by natural or legal persons who do not reside in Member States of the EU or in States that are members of the Economic Area European, “except when the constitution and operation of that responds to valid economic reasons and substantive business reasons“.

Well, with respect to this last anti-abuse clause, the Supreme Court, in a case in which the Tax Authorities considered that the payment of dividends of 7 million euros by a Spanish company to its parent company in Luxembourg should be subject to withholding because the entity had not demonstrated the existence of valid economic reasons for the constitution of the Luxembourg parent entity, concludes, after making an exhaustive review of the EU jurisprudence, that the burden of proof of the abuse falls on the Tax Administration.


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