Legal development

The Spanish Supreme Court confirms that comparable non-Spanish domiciled EU Hedge Funds


    A recent Spanish Supreme Court's judgement of 5 April 2023 has decided that the Spanish tax law infringes the EU principle of free movement of capital by establishing an unjustified different treatment between non-Spanish domiciled EU resident hedge funds and hedge funds resident in Spain. While income obtained by the former (mainly dividends) are taxed at the general rate of 19% in the Non Resident Income Tax (or double tax treaty reduced rates, normally of 15%), Spanish hedge funds are taxed at a rate of 1% in the Corporate Income Tax.

    Thus, it seems to be possible to request substantial tax refunds from the Spanish tax authorities for the difference between the two tax rates, provided that the non-Spanish domiciled EU resident hedge funds can prove that they are comparable by providing evidence of their compliance with several requirements. In this sense, the Supreme Court has stated that the burden of proof must be proportionate and reasonable, establishing which elements are relevant in the comparability analysis.

    In particular, non-Spanish domiciled EU resident hedge funds will be able to request a refund of all amounts paid in excess of the 1% rate for the past four years as long as they can prove that they (a) raise capital contributions from the general public (even if the access is restricted to professional investors or a minimum amount of investment is required), (b) have the corresponding authorization to operate in their country of incorporation, issued by the financial regulator and, and (c) demonstrate that their management corresponds to an entity authorized to operate as an Alternative Investment Fund Manager, under the terms of Directive 2011/61/EU. In addition, the fund must evidence that the discriminatory treatment has not been neutralized by the applicable Double Taxation Treaty.

    Therefore, the burden of proof of the above falls on the non-Spanish domiciled EU resident hedge fund that aims to obtain the refund, being key to preliminary assess whether the relevant documents would be available to correctly prove the fulfilment of the aforementioned requirements prior to decide to file a claim.

    The Madrid Ashurst team has broad experience in leading tax refund requests before the Spanish and other European tax administrations and, due to our combination of a strong tax litigation practice and an experienced finance regulatory team, we are uniquely placed to advice our clients in this kind of processes.


    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest