A recent judgment by the Court of Justice of the European Union (CJEU) in Santander Renta Variable España Pensiones (Case C-525/24) provides a landmark correction to this trend. The decision clarifies that member states cannot make tax relief contingent on a single "magic certificate" when other means of proof are available, especially in refund procedures.

The dispute: Spanish funds vs. Portuguese bureaucracy

The case originated in Portugal and involved Santander Renta Variable, a Spanish occupational pension fund. In 2020 and 2021, the fund received dividends from Portuguese companies, which were hit with a 25% withholding tax at source.

Under Portuguese law, domestic pension funds are exempt from this tax. Non-resident EU funds can also qualify for the exemption, but only if they provide a specific declaration "confirmed and certified" by their home-state supervisory authority (in this case, the Spanish regulator). Santander argued that it met all substantive requirements for the exemption but was unable to obtain the specific certificate because the Spanish authorities lacked the legal power to issue a document in the exact format required by Portugal. When the Portuguese tax authorities rejected the refund claim due to the missing certificate, the case was referred to the CJEU.

Objective comparability: The non-negotiable substance

While the evidentiary requirements were the focal point of the dispute, the Court’s ruling rests on the foundational premise that the Spanish fund was objectively comparable to its Portuguese counterparts.

This comparability is anchored in specific substantive criteria that form the "non-negotiable" core of the exemption. Specifically, the fund must exclusively guarantee payments for retirement-related risks, such as old age, invalidity, or survival, and must be managed by an entity falling within the scope of the IORP Directive (2016/2341). Furthermore, the fund must establish its status as the beneficial owner of the income and satisfy the one-year continuous holding period for the underlying shares. The significance of the Court’s decision lies in the distinction between the "how" and the "what": while the ruling introduces much-needed flexibility regarding the proof of these requirements, the substance of these four pillars remains the essential threshold for any fund seeking to claim relief.

The decision: equality of arms and mutual assistance

The CJEU ruled that the Portuguese requirement violated the Free Movement of Capital (Article 63 TFEU). The Court’s reasoning was the following:

• Substance over form: If a taxpayer can prove they are a qualifying pension fund using other reliable documents (such as fund rules, audited accounts, or tax residency certificates), the tax authority cannot ignore that evidence simply because it isn't the certified declaration.

• The power of cooperation: The Court highlighted that EU tax authorities are not acting in a vacuum. Under the Directive on Administrative Cooperation (DAC), Portugal has the tools to verify a fund's status by contacting the Spanish authorities directly. Forcing the taxpayer to bridge a bureaucratic gap that the government could easily bridge itself via mutual assistance was deemed excessive.

Why this matters for non-EU funds

While the Santander case involved two EU Member States, its implications echo far beyond the Union’s borders. The Free Movement of Capital is unique because it also protects investors from third countries (like the US, UK, or Canada).

For funds outside the EU, the “Equality of Arms” argument is slightly different. Non-EU funds do not benefit from the high-speed communication system of the EU’s DAC. Instead, they rely on the Exchange of Information (EoI) provisions found in bilateral Double Taxation Treaties (DTTs).

The interesting debate now is whether a DTT’s EoI provision is "strong enough" to replace the certificate requirement. If a US pension fund cannot obtain a specific certificate from the IRS, the Santander logic suggests that the Portuguese authorities should use the bridge provided by the Spain-US treaty to verify the facts, rather than simply denying the claim. However, because DTT requests are often slower and more formal than EU internal requests, non-EU funds may still face a higher evidentiary bar.

This ruling is a significant win for substance in international tax, as it reinforces that, while member states can set high standards for proof, they cannot set impossible ones.