Spain Unlocks WHT Refunds for Nonresidents in Loss Positions

Spain’s National High Court delivered a landmark ruling in July 2025 ordering withholding tax (WHT) refunds for loss-making EU investors receiving Spanish dividends, directly applying Court of Justice of the European Union anti-discrimination principles established in the Sofina and Credit Suisse Securities cases. The decision breaks new ground in Spain by recognizing that final source-country WHT on nonresidents violates EU free movement principles when comparable resident investors obtain refunds through integration into domestic corporate income tax (CIT) returns. In October 2025, Spain’s Central Economic-Administrative Court (TEAC) dramatically extended this framework beyond dividends to trademark royalties and, critically, elevated the discrimination analysis from individual companies to consolidated tax groups—creating potentially substantial refund opportunities for multinational enterprises across diverse income streams and corporate structures.

The CJEU Framework

The Spanish developments build upon two landmark CJEU decisions establishing that EU free movement principles prohibit discriminatory WHT treatment based on residence. In Sofina (C-575/17, Nov. 2018), the CJEU ruled that Belgium violated EU law by imposing final WHT on dividends paid to a loss-making Luxembourg holding company while Belgian residents in comparable loss positions could integrate dividends into their CIT returns, where losses would eliminate tax liability and generate WHT refunds.

The court held that this differential treatment (final WHT for nonresidents versus refundable WHT for residents experiencing losses) constituted prohibited discrimination under Article 63 Treaty on the Functioning of the EU on free movement of capital. Belgium’s argument that verifying foreign losses posed administrative difficulties was rejected, with the CJEU noting that mutual assistance mechanisms under EU Directive 2011/16 on administrative cooperation enable tax authorities to verify nonresident tax positions through competent authority information exchange.

The December 2024 Credit Suisse Securities decision (C-601/23) reinforced this framework in a UK context. The CJEU clarified that member states cannot justify differential WHT treatment through administrative convenience arguments when cooperation frameworks provide adequate verification tools and emphasized that residence-based discrimination in WHT treatment violates fundamental freedoms even where administrative complexity exists.

Spain’s National High Court Ruling

The Spanish National High Court applied this CJEU case law in its July 2025 ruling addressing UK resident Credit Suisse Securities Europe, which received Spanish-source dividends during fiscal years 2012-2015 while operating at substantial losses. Spanish subsidiaries paid dividends subject to WHT under Spanish nonresident income tax law and applicable bilateral tax treaty provisions, with Spanish tax authorities treating this WHT as final taxation.

Credit Suisse argued that, had it been Spanish resident, it would have integrated dividends into Spanish CIT returns where losses would have eliminated or substantially reduced tax liability, with any WHT deducted against that liability and excess amounts refunded. The differential treatment (final WHT for nonresidents versus provisional WHT subject to refund for residents experiencing losses) violated Article 63 TFEU under the Sofina framework.

Spanish tax authorities advanced three principal defenses. First, they contended that resident and nonresident situations were not objectively comparable because Spanish corporate taxation operates as comprehensive taxation on worldwide income while nonresident taxation imposes limited source-jurisdiction taxation on specific income categories. Second, they argued that documentation provided by Credit Suisse was insufficient to verify UK losses and calculate comparable Spanish CIT treatment. Third, they maintained that final WHT reflected legitimate policy objectives including administrative efficiency and prevention of tax avoidance.

The National High Court systematically rejected each argument. On comparability, the court held that the relevant comparison focuses on the tax treatment of Spanish-source dividends specifically, not overall tax system architecture. Both residents and nonresidents receive Spanish dividends, but only residents can integrate them into returns where losses eliminate liability and generate refunds—this differential treatment on identical income constitutes discrimination regardless of broader system differences.

On documentation, the court emphasized that EU Directive 2011/16 provides comprehensive mutual assistance mechanisms enabling Spanish tax authorities to verify foreign tax positions through information exchange with UK competent authorities. Spanish tax authorities cannot deny refunds based on documentation format concerns when they possess legal tools to obtain any information necessary for verification.

On policy justifications, the court held that administrative convenience cannot justify fundamental freedom violations when adequate verification mechanisms exist, directly applying the CJEU’s reasoning in Credit Suisse Securities. Tax avoidance concerns likewise fail to justify blanket denial of refunds absent specific evidence of abusive arrangements in individual cases.

The ruling ordered Spanish tax authorities to process Credit Suisse’s refund claim, verifying UK losses through mutual assistance and calculating what Spanish corporate tax would have accrued had Credit Suisse been resident, then refunding WHT to the extent it exceeded that calculated Spanish tax liability.

Structural Discrimination Analysis

The National High Court’s analysis clarified the discrimination framework’s mechanics. Spanish nonresident income tax imposes WHT on dividends paid to nonresidents at rates specified in domestic law or reduced under applicable tax treaties. This WHT operates as final taxation; nonresidents file no Spanish return, take no deductions, apply no losses, and obtain no refunds based on overall tax position.

Spanish corporate taxation is fundamentally different. Spanish residents include all income in annual returns, apply losses from current or prior years to reduce taxable base, calculate corporate tax liability on net income, and deduct WHT previously withheld against this liability. If WHT exceeds final CIT liability (which commonly occurs when losses eliminate or reduce taxable income), the excess is refunded. This integration mechanism transforms WHT from final taxation into provisional collection subject to adjustment based on the taxpayer’s comprehensive tax position.

The discrimination emerges from comparing two hypothetical investors (one Spanish resident, one nonresident) both receiving identical Spanish dividends during loss years. The resident files a Spanish CIT return showing losses, calculates zero or minimal tax liability, deducts WHT against this liability, and obtains a refund. The nonresident faces final WHT with no mechanism for refund based on loss position, paying significantly more Spanish tax on identical income in identical economic circumstances. This residence-based differential treatment violates Article 63 TFEU absent legitimate justification.

Extension to Other Investment Income Categories

The National High Court’s opinion, while addressing dividends specifically, articulated principles with broader application. Spanish nonresident income tax subjects multiple investment income categories to source-jurisdiction WHT, including interest payments and royalties. All share the structural characteristic distinguishing them from resident treatment—nonresidents face final WHT without integration into comprehensive returns where losses could eliminate liability.

Spanish residents, conversely, integrate all these income types into CIT returns, applying loss compensation to reduce taxable base, then deducting WHT against calculated liability and obtaining refunds for excess amounts. The structural parallelism between dividend, interest, and royalty taxation suggests that EU free movement principles established in the dividend context should apply with equal force to these alternative income categories, provided that taxpayers can demonstrate comparable loss positions that would have eliminated Spanish CIT liability had they been resident.

This analytical structure could be extended to other investment income categories subjected to source jurisdiction WHT, including interest and royalty payments where similar discrimination patterns may emerge. Spanish domestic legislation subjects interest and royalty payments to nonresidents to WHT under the Spanish nonresident income tax law, while resident recipients integrate such income into their CIT returns where losses may eliminate tax liability and generate WHT refunds.

The potential extension assumes particular relevance for financial services entities, investment funds, and multinational treasury operations that may receive Spanish-source investment income while experiencing loss positions due to operational characteristics, start-up phases, or cyclical business conditions. The jurisprudence framework established by the National High Court suggests that comprehensive refund strategies should evaluate all Spanish-source investment income subjected to final WHT during loss periods, rather than limiting analysis to dividend income specifically addressed in the Credit Suisse litigation.

Comparative regulatory context and Spanish Legislative Inaction

The National High Court’s ruling gains additional significance when evaluated within comparative European regulatory context, where certain member states have implemented specific legislative frameworks addressing WHT refunds for loss-making nonresidents following CJEU case law in Sofina and related cases.

In the Netherlands, an intermediate solution was provided back in 2020. In a Decree of the Dutch Ministry of Finance, certain non-Dutch resident entities could request a refund of Dutch dividend tax withheld in respect of portfolio investments insofar as this tax exceeded the CIT that would have been due had these entities been resident in the Netherlands. This included entities in a loss-making position and with a low tax base. As of January 1, 2022, however, in order to comply with EU law obligations, the issue was solved completely opposite to this refund for non-Dutch entities approach. A new law affected which Dutch resident entities would be limited in the possibility to credit Dutch dividend WHT. Based on these new rules, a taxpayer is only allowed to credit the WHT incurred in a year against the CIT due in that same fiscal year. Insofar as the WHT exceeds the CIT due, the excess is carried forward and can be offset against a positive balance of CIT payable in a future year. This change of law therefore also resulted in qualifying nonresident entities no longer being able to apply for a refund in years as of 2022, since they were no longer in a worse position compared to Dutch residents.

Meanwhile, France has adopted comparable legislative reforms, most notably Article 235 quarter of the French Tax Code. Subject to specific procedural and substantive requirements, this provision allows loss-making nonresident legal entities and organizations (based in the European Economic Area or in certain treaty jurisdictions) to obtain, on a temporary basis (until the shareholder becomes profitable), a refund of WHT levied on French-source investment income (including dividends). The deferral terminates upon the occurrence of certain events, most notably a return to profitability, at which point the nonresident recipient must repay the relevant tax.

Spain’s failure to implement comparable regulatory frameworks creates a distinctive enforcement environment where WHT refunds for loss-making nonresidents must be sought through individual refund claims and potential litigation absent clear administrative procedures or published guidance addressing documentation requirements, verification methodologies, or processing timelines. This regulatory void arguably could favor taxpayer refund claims by preventing tax authorities from invoking specific procedural requirements or substantive limitations that might constrain refund availability in jurisdictions that have implemented detailed regulatory responses to Sofina case law.

The National High Court’s emphasis on mutual assistance mechanisms may reflect judicial recognition that Spanish legislation provides insufficient guidance for resolving cross-border loss verification issues, necessitating reliance upon international cooperation frameworks to discharge administrative verification obligations.

Strategic Implications for Cross-Border Investment Structures

The National High Court’s decision carries direct implications for cross-border investment strategies involving Spanish-source investment income, particularly for EU/EEA resident entities and potentially for entities resident in jurisdictions maintaining comprehensive tax information exchange relationships with Spain enabling mutual assistance verification. Investment funds, financial services entities, and multinational groups receiving Spanish dividends, interest, or royalties during loss periods should evaluate whether prior-year WHT may be recoverable through refund claims grounded in the discrimination analysis established by the Credit Suisse jurisprudence.

The temporal scope of potential refund claims depends upon application of Spanish statute of limitations rules, which generally permit refund claims for taxes paid within four years preceding the claim date, subject to interruption and suspension rules that may extend this period under specific circumstances. The National High Court’s ruling addressed fiscal years 2012-2015, suggesting that claims may succeed even for periods substantially predating the filing date, provided that statute of limitations requirements are satisfied and taxpayers can provide adequate documentation of loss positions during relevant years.

The requirement for loss position documentation emphasizes the importance of maintaining comprehensive financial records and tax return materials covering all years for which refund claims may be contemplated. While the National High Court rejected Spanish tax authorities’ arguments regarding documentation insufficiency, taxpayers bear initial burden of providing credible evidence of loss positions, including financial statements prepared under applicable accounting standards, tax returns filed in residence jurisdictions, and supporting materials demonstrating that losses would have eliminated Spanish corporate tax liability had the entity been resident.

The National High Court’s endorsement of mutual assistance mechanisms suggests that taxpayers should anticipate Spanish tax authorities’ requests for verification through competent authority channels, potentially requiring cooperation with residence jurisdiction tax authorities in providing supplemental documentation or responding to information requests designed to confirm loss positions. The availability of these verification mechanisms cuts both ways: While preventing Spanish authorities from denying claims based solely on documentation format issues, the mechanisms also enable authorities to conduct thorough verification before granting refunds.

Procedural Considerations and Defensive Strategy Development

For taxpayers contemplating WHT refund claims under the Credit Suisse framework, careful attention to procedural requirements and defensive documentation strategies proves essential given the novelty of these claims within Spanish administrative practice and the likelihood of initial resistance from tax authorities lacking established processing protocols. Refund claims should articulate clear legal bases grounded in EU free movement principles as interpreted by CJEU case law, demonstrate factual comparability to circumstances addressed in Credit Suisse and Sofina decisions, and provide comprehensive documentation supporting all material elements required for refund determination.

TEAC Extension: Royalties and Tax Group Comparability

In October 2025, the Spanish TEAC issued a ruling (no. 384/2022) that fundamentally expands the National High Court’s framework through two key innovations. The TEAC explicitly reversed its prior administrative criteria and now has embraced the Sofina-Credit Suisse jurisprudence, but extended its application in ways that substantially broaden refund opportunities for multinational groups.

First, the TEAC formally extended anti-discrimination principles beyond dividends to trademark royalty payments. The case involved a French company receiving Spanish-source royalties subject to WHT under the Spain-France tax treaty. The court determined that the discrimination analysis applies with equal force to royalties: Spanish residents integrate royalty income into CIT returns where losses may eliminate liability and generate WHT refunds, while nonresidents face final WHT regardless of loss positions. This confirms that the structural discrimination identified in dividend cases extends categorically to interest, royalties, and other investment income subjected to Spanish WHT.

Second (and more significantly), the TEAC elevated the comparability analysis from individual entities to consolidated tax groups. Unlike the Sofina and Credit Suisse cases, which involved individually taxed companies, the French royalty recipient belonged to a consolidated French tax group. Group-level loss compensation mechanisms resulted in insufficient aggregate tax liability to fully absorb Spanish WHT as a foreign tax credit, with French law prohibiting carryforward of unutilized credits. In this vein, although the Spanish TEAC did not address this issue, it is worth recalling that the burden of proof regarding the existence of a “comparable situation” for the French tax group, under Spanish regulations, rests with the taxpayer. This would demonstrate that, had it been a Spanish group, it could have been taxed more advantageously compared to the final WHT on the royalty. If such lower taxation is verified (through deferral of taxation due to the effect of carryforward tax losses in the relevant tax year), the WHT applied would eventually be refundable, in whole or in part. In other words, if the aforementioned “comparability” and lower taxation of the “Spanish group” versus the taxation of the nonresident with immediate and final WHT on the royalty under the Spanish nonresident income tax are proven, the withholding tax applied to the royalty would be refundable.

The TEAC remanded factual determinations to Spanish tax authorities for verification of foreign group tax positions and calculation of comparable Spanish treatment, emphasizing that mutual assistance mechanisms under EU Directive 2011/16 enable authorities to obtain necessary information through competent authority channels. The resolution noted that verification must guard against “double loss compensation” scenarios and ensure that foreign tax credits are not ultimately utilized after Spanish refunds are granted, but these anti-abuse considerations do not justify blanket refund denials absent specific evidence in individual cases.

Takeaway

The combination of the National High Court’s July 2025 ruling and the TEAC’s October 2025 resolution establishes Spain as a jurisdiction where WHT previously treated as final may now be recoverable across dividend, royalty, interest, and potentially other investment income categories when losses prevent full utilization as foreign tax credits. The extension of the Sofina-Credit Suisse nondiscrimination jurisprudence to consolidated tax groups opens new tax refund possibilities for international taxpayers operating through group structures, though it also introduces substantial documentation and verification complexity.

For tax directors managing European operations with Spanish WHT exposure during loss periods (whether through portfolio investments, IP licensing arrangements, intercompany financing, or other cross-border income streams), these developments makes advisable evaluation of potential refund claims.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ishtar Sancho, José Manuel Calderón, and Juan José Sánchez are with A&O Shearman in Madrid, Spain.