DT17609 - DT: Spain: double taxation agreement, Article 10: Dividends

(1) Dividends derived from a company which is a resident of Spain by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in Spain, and according to the laws of Spain, but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed:
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends;
(b) in all other cases 15 per cent of the gross amount of the dividends.
(2) Dividends derived from a company which is a resident of the United Kingdom by a resident of Spain may be taxed in Spain. Such dividends may also be taxed in the United Kingdom and according to the laws of the United Kingdom, but where such dividends are beneficially owned by a resident of Spain the tax so charged shall not exceed:
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends;
(b) in all other cases 15 per cent of the gross amount of the dividends.
(3) However, as long as an individual resident in the United Kingdom is entitled to a tax credit in respect of dividends paid by a company resident in the United Kingdom, the following provisions of this paragraph shall apply instead of the provisions of paragraph (2) of this Article:
(a)

(i) Dividends derived from a company which is a resident of the United Kingdom by a resident of Spain may be taxed in Spain.
(ii) Where a resident of Spain is entitled to a tax credit in respect of such a dividend under sub-paragraph (b) of this paragraph, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom, on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 15 per cent.
(iii) Except as provided in sub-paragraph (a)(ii) of this paragraph, dividends derived from a company which is a resident of the United Kingdom and which are beneficially owned by a resident of Spain shall be exempt from any tax in the United Kingdom which is chargeable on dividends.

(b) A resident of Spain who receives dividends from a company which is a resident of the United Kingdom shall, subject to the provisions of subparagraph (c) of this paragraph and provided he is the beneficial owner of the dividends, be entitled to the tax credit in respect thereof to which an individual resident in the United Kingdom would have been entitled had he received those dividends, and to the payment of any excess of such credit over his liability to United Kingdom tax.
(c) The provisions of sub-paragraph (b) of this paragraph shall not apply where the beneficial owner of the dividends is a company which either alone or together with one or more associated companies controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends. For the purpose of this paragraph two companies shall, be deemed to be associated if one controls directly or indirectly more than 50 per cent of the voting power in the other company, or a third company controls more than 50 per cent of the voting power in both of them.

(4) The term `dividends` as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 11 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company.

(5) The provisions of paragraph (1) or, as the case may be, paragraphs (2) and (3) of this Article, shall not apply where the resident of one of the Contracting States has in the other Contracting State a permanent establishment and the holding by virtue of which the dividends are paid is effectively connected with the business carried on through such permanent establishment. In such a case the provisions of Article 7 shall apply.
(6) If the beneficial owner of a dividend being a resident of a Contracting State owns 10 per cent or more of the class of shares in respect of which the dividend is paid then paragraph (1) or, as the case may be, paragraphs (2) and (3) of this Article shall not apply to the dividend to the extent that it can have been paid only out of profits which the company paying the dividend earned or other income which it received in a period ending 12 months or more before the relevant date. For the purposes of this paragraph the term `relevant date` means the date on which the beneficial owner of the dividend became the owner of 10 per cent or more of the class of shares in question.
Provided that this paragraph shall not apply if the beneficial owner of the dividend shows that the shares were acquired for bona fide commercial reasons and not primarily for the purposes of securing the benefit of this Article.
(7) Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company and beneficially owned by persons who are not residents of the other State, or subject the company's undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State; provided that where a company which is a resident of a Contracting State has a permanent establishment in the other Contracting State it may be subjected therein to any withholding tax provided by the internal law of that other Contracting State but. such tax shall not exceed 15 per cent of the distributed profits of the company attributable to the permanent establishment after payment of corporation tax on its profits.