The new measures of the Taxation Agreement will favour Spain as a destination for US investors.
The implementation of the Protocol will amend the Double Taxation Agreement between Spain and the United States that came into force in 1990.
The main improvements in this new Agreement are related to capital gains, dividends and canons which until now have limited the taxation in the State of origin. With the new Agreement, these rents will have a lower limit with a rate from 10% to 5%, or even only pay in the State of residence.
Concerning the capital gains, they will only have to assume the payment of taxes in the State of residence of the transferor, besides the capital gains that result from real state transmissions. Furthermore, the withholding tax has been removed when the company is a Parent Company.
For royalties, the new Agreement will delete the taxation related to them. In case of constructions and projects, the period to be considered a permanent establishment gets extended from 6 to 12 months according to the Double Taxation Agreement.
In addition, a regulation of the enforcement of the Agreement to transparent entities is introduced with this Protocol. Other examples of modernization are the deployment of procedures for information exchange and mutual agreement procedures. A big step forward in this field is the new measure that allows arbitration between both administrations.
Another main change comes with the introduction of the limitation on benefits clauses. This clause establishes who can take advantage of the Double Taxation Agreement. It is necessary to be resident in one of the signatory countries and have a sufficient linkage with the State of residence, or a valid economic reason to obtain the rents of the State of source in the State of residence.
This new Agreement, besides from the aforementioned, will include techniques to enhance the exchange of information between both Tax Authorities and will cooperate to ensure that this new Agreement only applies to residents of both countries.
B Law & Tax
International Tax & Legal Advisors