Country / Language

Protocol Amending U.S.-Spain Tax Treaty


Synopsis:
Earlier this month, the U.S. and Spain signed a protocol that, once ratified by both countries, will amend their tax treaty in order to make it more current and more closely conform to their respective tax treaty policies. The amendment is expected to further benefit taxpayers who rely on the treaty to conduct cross-border transactions between the two countries.

Suggested Action:
After reviewing this Alert, please contact your CohnReznick client service professional for additional information on how the Protocol may affect your tax position as it relates to transactions related to Spain.

Issue:
On January 14, 2013 the United States of America and the Kingdom of Spain signed a Protocol amending the Convention between the United States of America and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and its Protocol signed at Madrid, on February 22, 1990 (hereinafter the "Convention").

According to the Treasury Department, the new tax treaty protocol between the United States and Spain brings the existing 1990 Convention into closer conformity with current tax treaty policies of both nations. The changes introduced in this protocol may further benefit taxpayers with cross-border investments between the U.S. and Spain that have relied on the existing tax treaty between the two countries.

While the new protocol amends 13 articles of the Convention and several paragraphs of the existing protocol to the Convention, the following are the most significant provisions that may impact taxpayers (stated tax rates are applicable to income earned in a Contracting State by a company resident of the other Contracting State):

  • Article 10 - Dividends


The existing tax treaty limited the tax imposed by a Contracting State on dividends to 15%, or 10% if the recipient is a beneficial owner of at least 25% of the voting stock of the company paying the dividends. Under the new protocol, the tax rates on such dividends will be limited to 15%, or 5% if the recipient is a beneficial owner of at least 10% of the voting stock of the company paying the dividends.

In addition, a new paragraph has been added to this article stating that dividends will not be taxed in a Contracting State if the beneficial owner has owned, directly or indirectly, 80% or more of the voting stock of the company paying the dividends for 12 months, and satisfies conditions of the amended Limitation on Benefits (LOB) article.

  • Article 11 - Interest


The existing tax treaty limited the tax imposed by a Contracting State on interest to 10%. Under the new Protocol, interest (except for contingent interest) will only be taxed in the country of residency of the recipient.

  • Article 12 - Royalties


The existing tax treaty limited the tax imposed by a Contracting State on royalties to 5, 8, or 10%, depending on the nature of the royalty. Under the new Protocol, royalties will only be taxed in the state of residency of the recipient. The new protocol has also significantly revised the definition of what constitutes a royalty.

  • Article 13 - Capital Gains


The existing tax treaty allowed tax to be imposed by a Contracting State on capital gains from the sale of shares or participations of a company if the recipient of the gain had owned 25% or more of such company. Under the new Protocol, capital gains from the sale of shares or participations of a company (except for real estate holding companies) will only be taxed in the country of residency of the seller.

  • Article 17 - Limitation on Benefits


The rules on the Limitation on Benefits have also been revised with some additional requirements to ensure that the benefits are only applied to residents of the two countries.

Once the legislative powers of both countries finalize the ratification process the new rules in the protocol will go into effect. It is likely that the many improvements to the existing tax treaty will promote further cross-border investment between the two countries.

Contact:
For more information, please visit the CohnReznick International Tax webpage and contact James Wall, Principal, International Tax Practice, at 646-254-7460, or Christina Lee, Partner at 646-254-7450.

 


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing or recommending to another party any tax related matters.

Search Our People

Search Our People

Look ahead. Gain insight. Imagine more. Is your business ready to break through?

View our new TV commercial..

Industry Outlooks

Industry Outlooks

Gain insight into what is ahead for the Commercial Real Estate, Technology and Middle Market Private Equity industries.

READ MORE

Learn about our upcoming events.

READ MORE

Working With Us

Working With Us

What makes CohnReznick different from others in our profession? And what should our clients come to expect when working with us? The answer is The CohnReznick Advantage. Contact us to learn how we can out the CohnReznick Advantage to work for your business.


People

The value of an organization is determined by the skills and qualities of its leaders. With more than 280 partners serving clients nationwide, CohnReznick is renowned for the diverse experiences, knowledge and backgrounds of its leadership.

Learn More

Services

We align our services in three segments: Accounting and Assurance, Tax, and Advisory. This approach allows us to provide holistic solutions to complex business problems and to seize upon opportunities requiring an integrated approach.

Learn More

Industries

Accounting and tax issues different significantly based on an organization's industry. We provide clients with expertise in nearly two dozen industries – we know the opportunities, the obstacles, the competitive landscape.

Learn more

Insights

CohnReznick professionals are thought leaders in their industries. Clients benefit from relevant and timely economic, legislative and industry insights that can keep them a step ahead of competition.

Learn More

Global Reach

Our involvement in the Nexia International network of firms enables us assist our clients wherever they do business-providing local expertise and connections wherever they needed. Nexia is comprised of 20,000 professionals operating in over 100 countries.

Learn More