Spain taken to European Court of Justice for discriminatory treatment of non-resident taxpayers

Brussels argues that Spanish law only allows residents to defer payment of capital gains tax, which "creates an unjustified obstacle to cross-border transactions"

Olatz Hernández

Brussels

Wednesday, 12 March 2025, 15:47

The European Commission has decided to take Spain to the Court of Justice of the European Union (CJEU) this Wednesday for its discriminatory tax treatment of non-resident taxpayers. The decision was taken after Spain failed to remedy an infringement related to the free movement of capital opened in December 2021. The EU has intervened on the grounds that the efforts of state authorities "have been insufficient".

Spanish tax legislation allows resident taxpayers to defer the capital gains tax when the payment for the transfer of assets is postponed for more than a year or paid in instalments over a period of more than a year, which provides "a cash flow benefit," said the Commission. However, for non-resident taxpayers the situation is different: capital gains are taxed on an accrual basis, meaning the tax is collected in full at the time of the asset transfer.

This means that non-resident taxpayers cannot avail themselves of the option to defer payment of the tax, even if they receive payment in instalments, which represents a significant cash-flow disadvantage compared with resident citizens. The EU has stated that this difference in treatment between residents and non-residents "infringes the principle of free movement of capital", as it imposes "a more burdensome tax structure on non-residents", which "creates an unjustified obstacle to cross-border transactions".

Earlier on Wednesday, the Commission sent a formal notice to Spain, requesting it to allow the deduction of directly related expenses when calculating the withholding tax on cross-border royalty payments.

The CJEU allows a member state to levy a withholding tax on cross-border royalty payments, but states that it must allow for the deduction of directly related expenses when determining the appropriate tax. Brussels has therefore decided to send a reasoned opinion to the Spanish authorities, who will now have two months to respond and take the necessary measures. If they fail to do so, the Commission may refer the matter to the CJEU.

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