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V2009-18 5 July 2018 · SG de Fiscalidad Internacional Criterion in force
IRNR · institución financiera

A venture capital fund may be considered a financial institution under Spanish law

A Spanish resident venture capital fund asks whether it qualifies as a financial institution under the Spain-Mexico double taxation treaty to avoid capital gains tax in Mexico. The DGT states that Spanish law considers it a financial institution, but notes that Mexico's interpretation prevails.

The question raised

Question posed: Consideration of the taxpayer as a "financial institution" for the purposes of applying Article 13.4 of the Spanish-Mexican Convention for the avoidance of double taxation on capital gains that, if applicable, could be generated as a result of the divestment in the capital of the Mexican company that the taxpayer may carry out in the future.

The DGT's ruling

In accordance with Spanish tax and financial regulations, venture capital funds are considered financial institutions. However, as Mexico is the State that could grant a tax exemption, its own interpretation of this term is relevant. The Convention establishes that, in the event of undefined terms, the meaning of the legislation of the State to which the Convention applies shall be applied.

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