Optimise your international tax position with confidence

The international tax challenge

The globalisation of business has made international tax one of the most critical and complex areas of corporate management. Regulatory frameworks from the OECD (BEPS), the European Union (ATAD I and II, DAC6), and national legislatures are evolving at pace, introducing new transparency obligations and restricting aggressive optimisation strategies.

In this context, companies with cross-border operations need proactive, up-to-date advisory that not only ensures compliance but identifies opportunities for tax efficiency within the new regulatory landscape.

Spain’s double tax treaty network

Spain has one of the most extensive double tax treaty networks in the world. These bilateral agreements are an essential tool for any business with international activity, as they allow you to:

• Reduce or eliminate withholding taxes on dividends, interest, and royalties
• Determine which country has taxing rights over specific business income
• Avoid double taxation through exemptions or tax credits
• Resolve disputes between tax authorities through mutual agreement procedures

Effective use of DTTs requires a detailed analysis of each transaction and deep knowledge of both the applicable treaty and the domestic legislation of each country involved.

Common scenarios we advise on

Our team has proven experience in tax planning for the most frequent international scenarios: expansion into new markets via subsidiaries or branches, international group restructurings, tax-efficient repatriation of profits, relocation of functions and assets, cross-border M&A transactions, expatriate management, and special regimes for posted workers.

Each scenario has its own tax implications, and the difference between proper planning and an improvised structure can represent a saving — or a cost — of hundreds of thousands of euros.

Spain’s ETVE regime: holding structure for international groups

Spain’s Entidad de Tenencia de Valores Extranjeros (ETVE) is one of the most competitive holding regimes in the EU for international investment structures. Governed by Articles 107-108 of the Corporate Tax Act (LIS), the ETVE provides:

Participation exemption on dividends and capital gains. Dividends received by an ETVE from qualifying foreign subsidiaries (those subject to a minimum effective tax of 10% and with genuine economic activity) are 95% exempt from Spanish corporate tax. Capital gains on the disposal of qualifying foreign shareholdings are similarly 95% exempt. The remaining 5% is taxable at the 25% corporate tax rate, resulting in an effective tax of 1.25% — one of the lowest effective holding rates in the EU.

Non-resident withholding exemption. Dividends paid by the ETVE to non-resident shareholders (including EU and non-EU shareholders) are exempt from Spanish withholding tax on the portion attributable to foreign-source income. This makes Spain competitive with Luxembourg, the Netherlands, and Ireland for holding structures targeting Latin American and US investment.

Treaty access. The ETVE benefits from Spain’s extensive double tax treaty network (90+ treaties), including treaties with Latin American countries that do not have treaties with classic holding jurisdictions (Luxembourg, Netherlands). This creates a material treaty advantage for structures with Latin American operating subsidiaries.

Substance requirements. Post-BEPS, the ETVE requires genuine management and substance in Spain: a management team with decision-making authority physically present in Spain, board meetings conducted and documented in Spain, and administrative infrastructure that reflects genuine functions rather than a letterbox. AEAT has intensified scrutiny of ETVE substance since 2022.

Pillar Two (global minimum tax): impact on Spanish groups

Spain enacted Law 7/2024, implementing the OECD’s Pillar Two global minimum tax framework from 1 January 2025. The law applies the qualified domestic minimum top-up tax (QDMTT) and the income inclusion rule (IIR) to multinational groups with consolidated revenues above €750 million.

For Spanish-headquartered groups within scope, the practical obligations are:

GloBE information return. Annual reporting of the group’s effective tax rate in each jurisdiction where it operates, identifying any top-up tax liability. Due within 15 months of the year-end (18 months for the first transition year).

Top-up tax payment. If a Spanish entity’s constituent unit has an effective tax rate below 15% in any jurisdiction, the Spanish parent company owes a top-up tax for that jurisdiction calculated under the GloBE rules. The top-up tax is assessed under the modified Spanish corporate tax return procedure.

Safe harbours. Three transitional safe harbours reduce compliance burden for the first three years: the simplified ETR safe harbour (based on Country-by-Country Report data), the de minimis exclusion (entities with revenue below €10M and income below €1M in a jurisdiction), and the transitional substance-based income exclusion (a carve-out for payroll and tangible asset returns).

BEPS and the anti-avoidance framework: what changed

The OECD BEPS project has been progressively implemented in Spain through a series of legislative measures that have fundamentally changed the international tax planning environment. Understanding these rules is essential for avoiding unintended non-compliance.

ATAD I and II transposition. Spain transposed the EU Anti-Tax Avoidance Directives through the Corporate Tax Act amendments. Key provisions include: interest limitation rules (Art. 16 LIS, limiting net financial expenses to 30% of EBITDA); hybrid mismatch rules (disallowing deductions on payments that are also deducted or exempt at the payee level); exit tax rules (taxing unrealised gains on assets leaving Spain’s tax jurisdiction); and the general anti-avoidance rule (GAAR) based on artificial arrangements.

CFC rules enhancement. Spain’s CFC rules (Art. 100 LIS for companies, Art. 91 LIRPF for individuals) were tightened post-BEPS to include passive income (dividends, interest, royalties, capital gains) arising in entities with effective tax rates below 15%, even where the subsidiary has genuine substance. The income is attributed to the Spanish parent pro-rata to its ownership percentage and taxed in the year it arises.

Anti-abuse provisions in DTT claims. Spain’s double tax treaties now include principal purpose tests (PPT) or limitation on benefits (LOB) clauses requiring treaty claimants to demonstrate that accessing the treaty benefit is not one of the principal purposes of the arrangement. This requires documented business rationale for any intercompany structure that relies on treaty benefits.

International tax compliance: the reporting calendar

Companies with international structures face an increasingly demanding reporting calendar. BMC manages all of these obligations on behalf of our clients:

Missing these deadlines carries fixed penalties of €10,000 to €20,000 per data set in the case of Modelo 231, and proportional penalties for other forms. The penalty regime for Modelo 720 has been reformed following the ECJ ruling (C-788/19) but reporting obligations remain.

Permanent establishment risk: identification and management

Permanent establishment (PE) is the most underestimated international tax risk for companies expanding operations into Spain or for Spanish companies operating abroad. A PE in a foreign jurisdiction creates a full corporate tax filing obligation in that country on the income attributable to the PE — even if the company has no formal legal presence there and has never filed a tax return.

Common scenarios that create inadvertent PEs in Spain for foreign companies include: a sales employee with authority to negotiate and conclude contracts (the agency PE), a fixed office used regularly by company personnel (the fixed place of business PE), a construction or installation project exceeding twelve months, and a subsidiary whose management is so integrated with the parent that it acts as a dependent agent.

Managing PE risk requires a clear contractual and operational framework: sales representatives should be independent agents without authority to bind the company; employees working in Spain should operate under a clear secondment or services agreement; office use should be documented as temporary and non-exclusive; and the activities performed in Spain should be limited to preparatory or auxiliary functions that are expressly excluded from PE treatment under the applicable treaty.

When a PE is identified retrospectively — through an AEAT inspection or as part of a due diligence review — the tax exposure includes back taxes from the date the PE arose, interest at the annual statutory rate (currently 4.0625%), and potential penalties. Voluntary regularisation before AEAT contacts the taxpayer reduces the penalty rate significantly and is generally the recommended course of action.

Treaty claims: documentation requirements and common mistakes

Using Spain’s double tax treaty network to access reduced withholding rates or exemptions requires affirmative action by the taxpayer — treaty benefits are not applied automatically by Spanish withholding agents.

The primary documentary requirement for a DTT claim is a certificate of fiscal residence (certificado de residencia fiscal) issued by the competent tax authority of the payee’s country, confirming that the payee is a tax resident in the treaty country for the purposes of the applicable treaty. The certificate must be current (typically issued within twelve months of the payment date) and must specifically reference the applicable treaty.

For EU investors claiming exemptions under the Parent-Subsidiary Directive or the Interest and Royalties Directive, the documentary requirements are similar but the legal basis is EU law rather than the applicable DTT. In both cases, the Spanish withholding agent bears secondary liability for withholding tax under-collection if the documentation provided proves to be incorrect or insufficient.

Common mistakes in treaty claims: Certificates of fiscal residence from countries with US-style worldwide taxation (particularly the US and UK) require careful analysis — the fact that the payee is a US or UK resident does not automatically mean all of the income is treated as arising to the resident entity for treaty purposes. Hybrid entities (transparent for US tax, opaque for Spanish tax), hybrid instruments (debt for one country, equity for the other), and conduit arrangements are all specifically targeted by anti-abuse provisions in Spain’s treaties with these countries.

BMC reviews the treaty claim documentation package for all inbound investment structures and provides a written opinion on the defensibility of the reduced withholding position before the first payment is made.