The European Court of Justice (the "ECJ") has issued a judgment dated 8 March 2017 (Case C-448/15) ruling that a company of a Member State which is subject to corporation tax at a zero rate does not qualify as a "company of a Member State" for the purposes of the Parent-Subsidiary Directive, thus not being applicable the exemption provided for in such Directive.
In the dispute in the main proceedings a Belgian company paid dividends to Netherlands fiscal investment institutions subject to corporation tax in the Netherlands at a zero rate. It was questioned whether such dividends were exempt from withholding tax in Belgium under the Parent-Subsidiary Directive and finally a preliminary ruling was brought before the ECJ. The ECJ concluded that the exemption under the Parent-Subsidiary Directive did not apply because a company which is subject to corporation tax at a zero rate of taxation (like the Netherlands fiscal investment institutions at issue in the main proceedings, provided that they pay all their profits to their shareholders) does not satisfy the condition laid down in Article 2(c) of Parent-Subsidiary Directive (i.e. to be subject to the corresponding corporation tax, without the possibility of an option or of being exempt) and does not therefore fall within the meaning of a "company of a Member State" for the purposes of that Directive.
Although the ECJ judgment refers to the inapplicability of the exemption provided for in the aforementioned Directive in the case of dividends paid to entities subject to a zero rate, in view of the interpretation that the ECJ carries out of Articles 2 and 3 of the Parent-Subsidiary Directive and under the provisions of Article 14.1.h) of the Spanish Non-resident Income Tax Act, it could be understood that the exemption does not apply either to withholdings on the dividends paid by those entities subject to a zero rate, so the dividends paid by the Spanish REITs (SOCIMIs) subject to a zero rate to their EU shareholders could not benefit from the exemption from withholding tax in Spain, which would advise the review of the current structures with Spanish REITs.
