Protocol and Memorandum of Understanding of the DTT with the US
With the entry into force on 27-11-2019, the Protocol and Memorandum of Understanding that modifies the DTT with the US have been published, introducing multiple modifications, some of them of great importance.
Protocol and Memorandum of Understanding modifying the DTT USA, BOE 23-10-19
The main modifications are presented below:
1. The concept of permanent establishment. From now on, they would be treated as such works or installations or drilling platforms or ship used for the exploration of natural resources, where their term, or exploration activity, exceeding twelve months (DTT Spain-USA art .5.3).
2. Regarding dividends (DTT Spain-US art.10):
- in general, they are subject to the 15% rate;
- a reduced rate of 5% (before 10%) if the beneficial owner is a company that owns at least 10% of the voting shares of the payer;
- an assumption that would be exempt from withholding, if the effective beneficiary is a resident company that has owned at least 80% of the paying company, steadily and is subject to certain requirements established in relation to the benefit limitation clause.
3. Interest will not be subject to withholding, in general.
An anti-abuse clause is also established for certain cases that could be assimilated to a share of benefits ( DTT Spain-US art.11.2).
4. Royalties are taxed exclusively in the State of residence, provided that the recipient is the beneficial owner (DTT Spain-US art.12).
5. In relation to capital gains, the submission to taxation in the State of the source for the profits from the disposal of shares or participations in cases in which the recipient held a share, during the year prior to the transfer of, is eliminated. at least 25% of the capital.
However, the taxation on the profits of the transfer of shares of companies whose assets consist mainly of real estate is maintained.
6. In order to apply the benefits of DTT, a test is envisaged, applicable to the holders of the shares, which requires them to be residents of an EU State or be part of the North American Free Trade Agreement (DTT Spain-US art.17).
Likewise, some discretion is granted to the authorities, who may apply the benefits of DTT even if all the requirements contained in this clause are not met.
7. Regarding the friendly procedure, it is established as mandatory to undergo an arbitration procedure to resolve the discrepancies in the application of the DTT when the competent authorities of both States have been unable to agree within two years, and the award may be rejected by the taxpayer.
8. Additionally, specific rules are applicable to REITs and IICs, income from pension funds, transparent companies, information exchange and mutual administrative assistance, relations with Puerto Rico.
9. Finally, the provisions of the Protocol take effect:
- in relation to withholdings at source, since its entry into force;
- in relation to taxes subject to a tax period, to the fiscal years beginning from the said entry into force; and
- Regarding the friendly procedure, they are applicable to those who bring cause in matters initiated as of the aforementioned entry into force.