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V0555-16 10 February 2016 · SG de Fiscalidad Internacional Criterion in force
IRNR · retención

Withholding tax on non-residents without a residence certificate does not constitute nationality-based discrimination

A banking entity has enquired whether applying withholding tax to non-resident clients who fail to provide a tax residence certificate constitutes discrimination against residents. The Directorate General for Taxes (DGT) has ruled that no discrimination exists, as residency is a valid factor for applying differentiated treatment.

The question raised

Question posed: Whether said practice of withholdings on income payments to non-resident legal entities constitutes discriminatory treatment with respect to the treatment given in income payments made to resident legal entities, in which, under the same circumstances, such withholding is not practiced.

The DGT's ruling

The obligation to withhold ceases when income is exempt under domestic regulations or treaties, but to this end, residence must be proven by means of a certificate. The differentiated treatment between residents and non-residents does not violate the principle of non-discrimination based on nationality, as this only applies when taxpayers are in the same conditions, including residence. Therefore, there is no discrimination in imposing withholdings on non-residents who do not prove their residence compared to residents.

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