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October 1, 2021

Spanish National High Court issues favorable decision on dividend withholding tax reclaims by non-Spanish hedge funds

The Spanish National High Court (Audiencia Nacional), in a recently published judgment (the Decision), dated 30 July 2021, has confirmed the right of hedge funds comparable to Spanish hedge funds (fondos de inversion libre) to obtain the refund of dividend withholding taxes (DWHT) imposed under the Nonresidents’ Income Tax (NRIT) on their investments in Spain.

The taxpayers in these cases were European alternative investment funds, that is, not harmonized under the UCITS Directive,1 investing in Spain and comparable to Spanish alternative investment funds.

While the Spanish tax rules provide for reduced taxation of 1% for Spanish hedge funds, there is no such tax benefit for comparable, non-Spanish investment vehicles.

The Spanish High National Court, considering previous case law on non-Spanish collective investment vehicles, confirmed that the Spanish NRIT Law does not provide a mechanism for nonresidents to assert their right to the application of the reduced rate that the national legislation provides for Spanish tax residents. This consideration is based on the fact that, unlike the Spanish Corporate Income Tax Law, the Spanish NRIT Law does not provide for a specific procedure for the refund of the excess WHT, but rather nonresidents are required to follow the general procedure to claim undue taxes established in the Spanish General Tax Law. For this, there is no regulatory framework that allows them to achieve equal treatment and consequently there is a breach of the principle of free movement of capital enshrined in Article 63 of the Treaty of the Functioning of the European Union (TFEU).

As a result, the Spanish High National Court confirmed the non-Spanish hedge fund’s right to the refund of excess taxes imposed and any related delay interest.

The Spanish High National Court also opined on the neutralization argument generally raised by the Spanish tax authorities and tax courts. The Spanish tax authorities and tax courts consider that the refund should not be granted, considering that the investors may be entitled to a foreign tax credit under the relevant tax treaty. Nevertheless, the decision refers to the fact that the burden of proof is placed on the Spanish tax authorities: the taxpayer is required to prove the right it is claiming and the “exception” or reason to reject the claim should be proved by the Spanish tax authorities.


This decision may potentially be appealed before the Spanish Supreme Court.

Nevertheless, it establishes another favorable step in the interpretation of the Spanish tax legislation in light of the EU freedoms, especially the free movement of capital, in the area of reclaims filed by non-Spanish funds.

EY Spain has experience in assisting in the review of reclaim opportunities and can also assist with a comparability assessment of the likelihood of success on a case-by-case basis. If the assessment is positive, EY Spain also has the experience to assist with the relevant WHT reclaims.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP (United States), Spanish Tax Desk, New York



  1. Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

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