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Brussels, 5 July 2006

Direct taxation: Commission requests Spain to end infringement to the Parent-Subsidiary Directive

The European Commission has decided to send Spain a formal request to amend a rule which automatically assumes the existence of an abuse in cases where a Spanish company pays a dividend to a company established in another Member State which is owned by a company resident in a third country. The Commission considers these rules to be contrary to the Parent-Subsidiary Directive. The request is in the form of a reasoned opinion, the second stage of the infringement procedure under Article 226 of the Treaty. If Spain does not amend its legislation within two months, the Commission may refer the case to the Court of Justice.

"It is settled case law that anti-abuse measures which restrict Treaty freedoms should be targeted" said László Kovács, the European Commissioner for Taxation and Customs Union. "The Court of Justice consistently refused to accept tax measures which automatically presume abuse, without any case-by-case examination of the actual existence of an abusive situation".

Article 5(1) of the Parent Subsidiary Directive (90/435/EEC) obliges Member States to exempt profits distributed by a subsidiary to a parent company of another Member State from withholding tax.

However, under the Spanish legislation a withholding tax is levied on dividend distributions by a Spanish subsidiary to a parent company of another Member State, if that parent company is owned by a company of a third country (non-EU State), even if that parent company meets the conditions of the Parent-Subsidiary Directive.

Article 1(2) of the Directive gives the Member States a certain discretionary power to apply domestic or treaty-based anti-abuse provisions, in derogation from the substantive rules of the Directive. Such measures must be proportionate to the aim sought.

The Commission is of the opinion that the Spanish measure does not comply with this condition, as it applies automatically to all cases where a parent company resident in a Member State is owned by a company resident in a non-EU third country, without any case-by-case examination of whether an abuse is actually being committed.

The Commission's case reference number is 2005/2275.
For the latest general information on infringement measures against Member States see:
For more information on the Directive see:

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