The Central Economic-Administrative Tribunal (TEAC) has issued a landmark
resolution that significantly changes the Spanish approach to withholding tax
suffered by non-resident entities. In line with recent European case law and the
position adopted by the Spanish National High Court, the TEAC now accepts that a
non-resident company may recover IRNR withholding where it has been unable to
utilise the corresponding foreign tax credit in its home jurisdiction due to tax
losses.
This decision represents a clear departure from previous administrative practice
and aligns Spain with the requirements of EU law on the free movement of capital.
- Background and circumstances of the case
The claimant, XZ-TW, S.A.S., a French company forming part of a consolidated tax
group, licensed trademarks to a Spanish entity (QR, S.A.). The Spanish payer
withheld IRNR on the royalties paid in 2016 and 2017, in accordance with the
domestic law and Article 13 of the Spanish Non-Resident Income Tax Act.
After filing its corporate income tax return in France, the group found itself unable
to absorb the Spanish tax credit because its consolidated taxable base was
negative. French legislation does not allow unused foreign tax credits to be carried
forward. As a result, the Spanish withholding tax became a definitive cost.
XZ-TW therefore requested a rectification of its Form 216 returns and sought a
refund of the amounts withheld at source. The Spanish Tax Agency rejected the
claim, arguing:
- that part of the periods requested was time-barred, and
- that under the Spain–France Double Tax Treaty (particularly Articles 12
and 24), it is the State of residence that must eliminate double taxation.
2. The TEAC’s resolution: a partial but decisive ruling
The TEAC overturns its earlier interpretation and partially upholds the
company’s claim. The decision establishes three essential principles:
a) Spain must consider a refund where the non-resident has been unable to
apply the foreign tax credit due to losses
Following the reasoning of the CJEU in judgment C-601/23 (19 December 2024)
and the National High Court in its judgment of 28 July 2025, the TEAC accepts that
denying a refund to a non-resident, when a resident taxpayer in an equivalent
situation would not bear the tax cost, constitutes a restriction on the free
movement of capital under Article 63 TFEU.
b) The comparison must be made with a Spanish tax group, not with a stand
alone company
Because XZ-TW belongs to a consolidated group in France, the TEAC instructs the
AEAT to determine whether a Spanish tax group in an equivalent position would
have been able to recover or offset the withholding. It is not sufficient to compare
the claimant with a single entity, as previous TEAC resolutions had indicated.
This point marks a substantial shift from earlier decisions of the Tribunal
(including those of 2017, 2021 and 2023), which consistently declined such
refunds.
c) Prescription must follow the doctrine of actio nata
The TEAC accepts the argument that the four-year limitation period in Article 67 of
the General Tax Law does not begin when the withholding is made, but when the
taxpayer becomes aware of the impossibility of using the credit—specifically,
when the French corporate income tax return is filed.
Until that moment, the company could not know whether the withholding would
be recoverable in France and therefore could not exercise its right to request a
refund from Spain.
3. Jurisprudence and legal grounds underpinning the change
The TEAC’s new approach is driven primarily by EU law and recent jurisprudence:
- CJEU, 19 December 2024, Case C-601/23: establishes that preventing a
non-resident from recovering withholding tax where losses impede the use
of the foreign tax credit constitutes discriminatory treatment. - National High Court, 28 July 2025 (2486/2021): applies the CJEU’s
reasoning directly to the Spanish IRNR. - Earlier case law, including TS judgment of 18 October 2022 and the AN
ruling of 2013 on structural deficits, is revisited in this new light. - The TEAC notes the limited relevance of the CJEU Sofina judgment (C
575/17), which in previous years had been interpreted restrictively in
Spain.
The combined effect of these decisions compels the TEAC to abandon the position
it had held in its resolutions of 29 May 2023, 2 November 2017 and 22 July
2021, all of which rejected refund claims in similar scenarios.
4. Consequences of the ruling
The ruling has far-reaching implications for non-resident companies operating in
Spain, particularly those belonging to international groups:
- Opportunity to seek refunds of IRNR withholding not offset abroad
Entities that were unable to utilise foreign tax credits in their home jurisdiction
may now pursue reimbursement in Spain, provided the situation is comparable to
that of a Spanish tax group. - Stronger protection under EU law
Article 63 TFEU serves as the core legal basis, preventing Spain from imposing a
definitive tax burden on non-residents that residents would not suffer. - Re-opening of potential claims for open tax years
The application of the actio nata doctrine extends the window for filing refund
requests, especially where the foreign tax return was submitted more recently
than the Spanish withholding. - Clearer guidance for cross-border investment structures
This decision reduces the risk of irreversible double taxation and brings greater
certainty to foreign investors receiving Spanish-source income, such as royalties,
interest or services.
5. Conclusion
The TEAC’s new criterion represents an important evolution in Spanish tax
practice. By recognising that non-resident companies should not bear a definitive
Spanish withholding tax when losses prevent the use of the foreign tax credit in
their country of residence, the Tribunal aligns Spain with EU principles and
ensures equal treatment between resident and non-resident taxpayers.
This ruling will undoubtedly encourage international groups to revisit past
withholding positions and evaluate whether refunds may be requested. For
current and future investments, the decision offers greater reassurance and
reinforces Spain’s commitment to legal certainty and compliance with European
law.
