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The new wording of double taxation agreement with the United States increases investment in Spain

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Convenio doble imposición entre España y USA

The new wording of double taxation agreement with the United States increases investment in Spain

After years of blockage, on 16 July 2019 the US Senate approved the amendments to the Double Taxation Avoidance Agreement signed with Spain. These amendments had been agreed in 2013 and had been blocked in the US Senate since then.

Once the blockage had been overcome, and the “exchange of letters” procedure had been completed, the new text came into force on 27 November.

At the presentation of the new text, US Ambassador Duke Buchan assured that “in the first three years the agreement will allow billions in trade between the two countries, more jobs”.

Probably the most important package of new developments concerned the taxation of dividends between parent and subsidiary. Withholding tax is abolished for parent companies holding at least 80% of the voting rights in the dividend paying subsidiary and reduced to 5% for all other associated companies.

Until now, the withholding tax on dividends paid by a subsidiary to its parent company in the other state meant that a large part of potential US investment in Spain was diverted in favour of other countries with more attractive agreements. This modification will attract this investment to Spain, as well as facilitating Spanish internationalisation in the United States through subsidiaries.

In addition, with regard to interest, exclusive taxation in the recipient’s country of residence is established, eliminating taxation at source.

Taxation at source of royalties paid between contracting states is also eliminated. This is particularly important for facilitating technology imports into Spain.

In addition to the above, the permitted period of stay was increased from six to twelve months for construction works or installations for the exploitation of natural resources, without the existence of a Permanent Establishment being understood to exist.

Lastly, a new arbitration procedure was established, aimed at resolving disputes between the two countries over the application of the Convention in a more efficient manner. Two years after the dispute has arisen, if there is no solution to the conflict, arbitration is established as compulsory and binding for both States.

We can therefore conclude that the new wording modernises the Double Taxation Agreement between Spain and the United States, which is very good news for the Spanish economy and, once normality has been restored after the pandemic, will boost investment between the two countries.

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