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August 15, 2022

Spanish High Court confirms treaty exemption under Brazil-Spain Tax Treaty

  • The High Court of Justice of Catalonia confirmed that dividends received by a Spanish tax resident individual from a Brazilian company are entitled to a full tax exemption as set forth by the Brazil-Spain Double Tax Treaty.

  • The impact of this judgment for corporate taxpayers must also be considered, especially the possibility to claim that dividends received from Brazilian subsidiaries should not be affected by the limitations that apply to the domestic participation exemption.

Executive summary

On 18 July 2022, the High Court of Justice (Tribunal Superior de Justicia) of Catalonia, confirmed that the dividends received by a Spanish tax resident individual from a Brazilian company are entitled to a full tax exemption as set forth by the Brazil-Spain Double Tax Treaty (DTT).

While the referred decision deals with the rules applicable to Spanish tax resident individuals, the reasoning followed by the Court on the prevalence of the DTT over the domestic provisions may also be relevant to sustain the application of a full tax exemption on dividends derived by a Spanish tax resident company from a Brazilian subsidiary.

Detailed discussion

In the case analyzed by the Catalonia High Court of Justice, the Spanish tax resident individual received dividends from a Brazilian tax resident entity; such dividends were treated as taxable income and fully subject to tax under the Spanish Personal Income Tax (PIT) provisions, since no domestic exemption was available.

Subsequently, the taxpayer requested the refund of the tax paid on the Brazilian dividends, on the grounds that the Brazil-Spain DTT provides for a full exemption as dividend income derived from a Brazilian entity should be exempt.

The only requirement of the DTT exemption is that, according to the terms of the same, the dividend may be subject to withholding tax in Brazil (even if not subject to withholding tax in practice). It is also worth noting that the DTT exemption does not refer to the domestic provisions for avoiding double taxation which may be available.

The Spanish tax authorities and the Regional Tax Court (Tribunal Económico Administrativo Regional de Cataluña) rejected such claim on the grounds that effective taxation of the dividends is required for applying the DTT exemption; however, according to the literal wording of the Brazil-Spain DTT, it is only required that such dividend can potentially being taxed under the terms of Article 10.

The High Court of Justice of Catalonia confirmed the taxpayer’s claim considering that the exemption method provided by the Brazil-Spain DTT should be applicable, irrespective of the fact that the PIT Law does not contemplate an equivalent exemption mechanism and even if no withholding tax at source was effectively applied.


Aside from the paramount relevance of this decision for individual taxpayers deriving dividend income from Brazil, the impact of this judgment for corporate taxpayers must also be considered.

Unlike the rules for individual taxpayers, which as noted do not foresee an exemption for dividend income, the Spanish participation exemption regime included in the Spanish Corporate Income Tax Law provides an exemption for dividend income derived by Spanish tax resident companies from qualifying subsidiaries (whether Spanish or non-Spanish). However, this regime was amended to limit the exemption to 95% of the qualifying income, for fiscal years beginning on or after 1 January 2021 (for background on this amendment, see EY Global Tax Alert, Spain approves State Budget Bill for 2021, dated 6 January 2021).

There are technical arguments to support the position that the exemption with respect to dividends received from Brazilian subsidiaries should still be 100% exempt since the DTT would prevail over the domestic rule which has limited the exemption to 95%, which would be in line with the reasoning of the Court in the referred decision.


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


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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