Modifications for avoidance of double taxation Spain/USA

Fiscal News

On November 27 comes into force the Protocol that modifies the Convention for the avoidance of double taxation between Spain and the US. This Protocol was signed in January 2013. Its entry into force was subject to the corresponding ratification procedure in both countries. Spain ratified it in 2014 and the US Senate just ratified it on August 27, which implies its entry into force on November 27.

The Protocol introduces important changes to the current Convention:

  1. The withholding tax rate applicable to dividends is reduced to 5% when paid to a company that owns at least 10% of the shares of the entity that distributes them. There will be no withholding tax on dividends when distributed to parent companies that, in addition to maintaining an 80% stake, meet certain reinforced requirements set forth in the benefit limitation clause. It also provides 0% withholding on dividends received by pension funds.
  2. The tax on interest is eliminated at the source.
  3. The Protocol eliminates the tax on royalties, which will be a huge advantage for exporting technology companies from both countries.
  4. Both countries waive their right to tax capital gains on stocks and shares, with the sole exception of those with real estate substrate.
  5. The Protocol includes the mandatory arbitration clause to resolve double taxation disputes.
  6. The Protocol includes other technical issues of concern, improving the exchange of information and mutual administrative assistance between the tax authorities of both countries.
  7. Following the model of the US agreements, it establishes detailed rules of limitation of benefits to ensure the correct application of the benefits of the Convention.
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