Domestic double taxation relief applicable to capital gains derived by EU resident entities on disposal of shares in Spanish entities

Following the non-discrimination principle, in response to an appeal dated 25 October the Spanish Supreme Court has applied a tax credit to avoid double taxation, provided in the Corporate Income Tax Law for Spanish resident entities only, to capital gains derived by EU resident entities from the transfer of shares in Spanish entities.

In the case at hand, a French company sold the shares of its Spanish subsidiary, resulting in taxation on the capital gains in Spain. However, the French appealer claimed that the Spanish rules governing taxation of capital gains derived by non-Spanish resident entities are discriminatory, provided that, had the transfer been operated by a Spanish resident entity, the appealer would have been entitled to apply a tax credit on the undistributed retained earnings of the subsidiary generated during the holding period. However, such tax credit is not available for non-resident transferors and as a consequence, the appealer claimed for an undue income refund…

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