If an EU-resident recipient of a royalty is not its beneficial owner, the reduced withholding rate under the tax treaty cannot be applied either

Article 14.1.m) of the Revised Nonresident Income Tax Law regulates an exemption for Spanish-source royalties where certain requirements are met. Basically, (i) the paying and receiving companies must be subject to and not exempt from one of the taxes mentioned in Council Directive 2003/49/EC of June 3, 2003, and must take one of the forms provided for in that directive, (ii) both entities must be tax resident in the EU and not considered resident in a third country for the purposes of a tax treaty concluded with that third country; (iii) the entities must be associated (within the meaning of the Directive itself); and (iv) the recipient must receive the royalties for its own benefit and not as a mere intermediary or authorized agent of another person or entity. This domestic exemption transposes into Spanish law the exemption established in the above-mentioned directive.

In this context, in its judgment of January 12, 2026, the Supreme Court analyzed a case in which a Spanish entity belonging to a multinational group pays royalties to a group entity that is tax resident in the Netherlands and acts as a manager in the collection of royalties. The assets that generate the right to these royalties are owned by a second entity also incorporated in the Netherlands but resident in Curaçao. Specifically, it analyzes whether “after ruling out the applicability of the exemption provided for in article 14.1.m) of the Revised Nonresident Income Tax Law (which transposes Council Directive 2003/49/EC of June 3, 2003, on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States) and given the existence of a tax treaty that provides for a specific regime for the disputed income, the withholding rate must be that provided for in that tax treaty or that contained in the domestic legislation regulating the tax.”

The Supreme Court concluded that, based on the principle of the primacy of EU law, where the payment falls within the scope of the directive but the exemption is not applicable because the recipient is not the beneficial owner, it is not possible to refer to the relevant tax treaty either (in this case, article 12 of the Spain-Netherlands tax treaty) to determine the applicable withholding rate, but rather to the domestic legislation (given that it fully transposes the directive, which establishes a comprehensive and priority regime for interest and royalty payments between associated companies of EU Member States). Therefore, the applicable withholding tax will be 24% (in the year analyzed, 24.75%) and not 6%.

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