The Supreme Court and the National High Court have handed down some 20 judgments so far this year ruling against Hacienda and in favor of several Asset Managers of investment funds, pension plans and life insurances. Justice has established that the Tax Office improperly levied a withholding tax on dividends collected by investment vehicles located outside Spain and that it refused to pay back. Now Spain will have to pay back several tens of millions of euros.
Among the Asset Managers that have won the battle to Hacienda are the largest in the world, the Americans BlackRock and Vanguard, which manage assets between the two worth more than 10 billion. There is also Norges, which together with BlackRock are the two largest investors in the IBEX 35. There are English Asset Managers, such as Schroders or Scottish Equitable (owned by the insurer Aegon), as well as the pension funds of the workers of the BBC and the British electricity grid (National Grid UK) and many other institutional investors in a trickle of cases which, according to legal sources, will continue.
In 11 of the sentences, it is clearly established how much money Spain must return to the beneficial owners of the funds or plans. In total, close to 15 million euros plus interest on arrears, almost always for more than a decade. However, the total amount will be much higher because BlackRock and Vanguard are the main owners of many of the large Spanish companies, but in these sentences the quantities are not detailed. In addition, as reflected in some of the justice decisions, there are hundreds of institutional investors in the same situation. After years of administrative and judicial battle, the Supreme Court has now dictated jurisprudence and the National Court recognized that it was waiting for its doctrine to unlock the appeals that were accumulating.
The cases sentenced by the Supreme Court and the National Court date back to between 2002 and 2010. Then, Hacienda applied a 15% withholding tax (which then went up to 18%) to the dividends that Spanish companies paid to their shareholders, when they were foreign investment vehicles. This withholding was part of “impuesto de la renta de no residentes” (IRNR).
Contrary to law
The foreign Asset Managers used figures such as Luxembourg sicavs, Irish investment funds or life insurances domiciled in the United Kingdom. When they began to be withheld on the dividends of their investments, they went to court to denounce that there was a discrimination contrary to EU law (Article 63 TFEU), since the tax regime that was being applied to them was worse than the one supported by the domestic (Spanish) funds, Pensions and life insurances.
The investment funds (UCITS) and pension funds have a special taxation, as a collective investment vehicle. They have to pay 1% only of withholding tax.
The decisions of taxation of the Tribunal Económico-Administrativo Central (Ministerio de Hacienda) were contrary to the interests of foreign investors, so they decided to appeal and go, first to the National Court and then to the Supreme Court.
A ruling of the Sala de lo Contencioso-Administrativo del Tribunal Supremo, published on 21stof May 2019, makes clear the jurisprudence: Hacienda has to pay back the withheld dividends. The case was driven by iShares, a subsidiary of BlackRock for listed funds (ETF). They claimed not only the return but, also, that when calculating the amount to be returned, interest will be applied from the moment when the withholding on the dividends was improperly activated. The ruling of the Supreme Court establishes that “the legal regime of the IRNR in force in the years to which the withholdings […] applied on the dividends paid by Spanish companies, is contrary to EU law”.
Since January 2010, a reform was included so that investment vehicles from other EU countries would have the same tax treatment to domestic ones, and a withholding on dividends would no longer be applied. Despite this reform, the withholding tax on dividends is still applied and the investors still need to reclaim it.
LIST OF PLAINTIFFS
BlackRock the largest manager in the world (€ 5.8 trillion under management) and the first shareholder of a large part of the IBEX 35 companies has filed several lawsuits against Hacienda for discrimination in tax treatments.
Vanguard. The world leader in exchange-traded funds (ETF) has also sued Spain considering that it was applying a discriminatory tax policy.
Norges Bank. The Central Bank of Norway, as the owner of the state pension fund, has managed the National Court to recognize in a February ruling that Hacienda should return 3.84 million for withholdings applied to the collection of dividends.
BBC Pension Scheme. Even the Asset Manager of public television workers in the United Kingdom (the BBC) has managed to get the Spanish justice to recognize the right to recover 200,000 euros unduly charged.
Source: newspaper El Pais. Translated by Globe Refund’s team.
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