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V1671-14 1 July 2014 · SG de Fiscalidad Internacional Criterion in force
IRNR · dividendos

Dividend exemption for German parent with Spanish subsidiary under valid economic grounds

A Spanish company asks whether dividend distributions to its German parent (indirectly owned by a US LLC) may be exempt from IRNR. The DGT examines whether the conditions of the Parent-Subsidiary Directive are met, particularly the requirement that the exemption not be used for improper profit shifting.

The DGT's ruling

The exemption under Article 14.1.h) of the TRLIRNR is applicable if the German parent company holds at least 5% of the subsidiary uninterruptedly for one year and meets the requirements of legal form and taxation. Since the parent company is owned by a non-EU entity, the exemption requires the parent company to demonstrate valid economic reasons for its incorporation. If the German parent company is used to pool investments in Spain, manage risks, and possesses the means for its activity, it is considered to have business purposes and not to be for the undue enjoyment of the exemption.

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