While the Spain–United States Double Taxation Convention offers attractive withholding tax relief for pension institutions, accessing those benefits in practice can be challenging, particularly where income is received through pooled or transparent vehicles such as U.S. group trusts. 

A recent ruling by the Tribunal Económico-Administrativo Central (TEAC) provides a timely reminder of how strictly Spanish authorities assess treaty entitlement in refund procedures. The decision clarifies what is expected when a U.S. tax-exempt group trust seeks a refund of excess Spanish non-resident income tax (Impuesto sobre la Renta de no Residentes, IRNR) withheld on dividends, and why beneficiary-level evidence can be decisive.   

1. Treaty Relief Depends on Who Ultimately Benefits 

The core message of the ruling is straightforward: treaty benefits are not granted based solely on the legal form or tax status of the receiving entity. Instead, the focus lies on identifying who is considered the beneficial owner of the income for treaty purposes. 

In the case at hand, dividends were paid by Spanish companies to a U.S. group trust recognised as tax-exempt under U.S. law. A U.S. group trust is a pooled investment vehicle commonly used by U.S. tax-qualified retirement plans to invest together while maintaining their tax-exempt status. While the trust itself received the income, the TEAC emphasised that entitlement to the reduced withholding rate under the Spain–U.S. Convention depends on whether the underlying beneficiaries qualify as U.S. residents entitled to treaty protection. This approach reinforces Spain’s long-standing substance-over-form interpretation in treaty matters. 

For tax professionals, this confirms that pooled pension or retirement structures will often be looked through, even where they are well-established and regulated in their home jurisdiction. 

2. Tax-Exempt Status Alone Is Not Enough 

One of the most relevant aspects of the decision is the clear distinction drawn between tax exemption and treaty eligibility. The claimant relied heavily on the trust’s classification as a tax-exempt group trust under U.S. Internal Revenue Service guidance, assuming this status would be sufficient to support the refund claim. 

The TEAC rejected this assumption: while acknowledging the trust’s exempt status under U.S. domestic law, it made clear that exemption does not automatically translate into entitlement under an international tax treaty. Treaty relief requires compliance with the specific conditions set out in the Convention, which operate independently from domestic classifications. 

This is an important reminder for advisers: domestic tax treatment, even when well documented, cannot replace treaty-specific evidence. 

3. Beneficiary Residence as a Decisive Factor 

A pivotal issue in the ruling was the absence of reliable proof regarding the residence of the underlying participants in the group trust. The documentation provided included a residence certificate issued for the trust itself and internal listings of participating pension plans, but these materials did not conclusively demonstrate that the majority of beneficiaries were U.S. residents. 

The TEAC highlighted inconsistencies and a lack of certification in the evidence presented. As a result, it concluded that the claimant had failed to show that the income ultimately accrued to persons entitled to treaty benefits. This finding was sufficient to deny the refund, regardless of the trust’s overall structure or purpose. 

In practice, this sets a high evidentiary bar. Where beneficiary residence is relevant, Spanish authorities expect documentation that is both coherent and verifiable, issued or endorsed by competent authorities. 

4. Strict Application of the Limitation-on-Benefits Clause 

The decision also illustrates the active enforcement of the Limitation-on-Benefits (LOB) clause in the Spain–U.S. Convention. For pension trusts and similar vehicles, the LOB provisions generally require that more than half of the beneficiaries be residents entitled to treaty benefits. 

The TEAC confirmed that this condition is not a formality but a substantive requirement that must be demonstrated with evidence. Failure to meet or properly prove this threshold will prevent access to reduced withholding rates or refunds, even where the structure is otherwise aligned with the treaty’s objectives. 

For advisers, this reinforces the need to treat LOB analysis as a central part of any treaty-relief strategy (especially US tax treaties which are most likely to contain an LOB provision) involving collective investment or retirement vehicles.  

5. Refund Procedures Invite Deeper Scrutiny 

Finally, the ruling highlights an important procedural reality: refund claims are often examined more rigorously than relief-at-source applications (although the latter face increasing scrutiny as well). In refund scenarios, tax authorities review the facts retrospectively and may request extensive supporting documentation, sometimes years after the income was paid. 

This dynamic increases the risk for structures that rely on assumptions about beneficiary profiles or incomplete records. It also raises practical questions about data availability, confidentiality, and coordination with plan administrators; issues that should be addressed well before a refund claim is filed. 

Looking Ahead: Practical Takeaways for Advisers 

This TEAC ruling fits squarely within a broader trend toward stricter treaty enforcement and greater transparency expectations. For tax professionals advising U.S. pension funds, group trusts, or asset managers investing into Spain, the implications are clear: 

• Treaty entitlement must be assessed at the beneficiary level, not just at the level of the receiving vehicle; 

• Documentation should be designed with refund procedures in mind, not only initial withholding positions; 

• Early planning, including feasibility assessments for obtaining certified beneficiary data, can prevent costly disputes later on. 

As cross-border investment structures continue to evolve, this decision serves as a useful reference point on how Spanish tax authorities interpret treaty access in practice.  

Importantly, the outcome of this Spanish case also helps explain why the United States has increasingly relied on competent authority arrangements (CAAs) to clarify the treaty treatment of pension-related pooling vehicles. As discussed in our earlier article on the U.S.–Denmark Competent Authority Arrangement, such agreements are specifically designed to address situations where group trusts struggle to qualify for treaty benefits under a strict, beneficiary-focused analysis like the one applied by the TEAC. The Spanish ruling highlights the practical difficulties these structures face in the absence of bilateral clarification, making it reasonable to expect that similar discussions between U.S. and Spanish competent authorities may emerge over time.