Spanish Supreme Court confirmed ECJ withholding tax reclaim by Norwegian sovereign wealth fund

MARCH 22, 2021 | TAX NEWS

Spanish Supreme Court confirmed ECJ withholding tax reclaim by Norwegian sovereign wealth fund

On March 2nd, 2021, the Spanish Supreme Court ruled that Spain violates the European free movement of capital (art 63 EU Treaty and art 40 EEA Agreement) by not refunding Spanish dividend tax (withheld from dividends paid by Spanish publicly listed companies) to two Norwegian sovereign wealth funds (“SWFs”). By exempting its own SWFs from tax (on portfolio investment income) while taxing foreign (non-resident) SWFs, Spain is discouraging foreign SWFs to invest in Spanish public equities and infringing on the free movement of capital. The Supreme Court correctly observes that the free movement of capital must be equally observed towards non-EU member states (as Norway is not an EU member state).

Based on established case law from the European Court of Justice, such an infringement on the free movement of capital may be justified only (1) if the non-resident claimant is not “objectively comparable” with a resident (to which it compares itself, in this case an SWF, and which receives a more favorable tax treatment) or (2) in case of “overriding reasons in the public interest”. The Spanish Supreme Court ruled that the situation of the Norwegian SWFs is objectively comparably and that no overriding reason in the public interest justifies this particular discrimination. Consequently, the infringement cannot be justified and the Spanish dividend withholding tax must be refunded.

It is interesting to see that the question of objective comparability is approached quite broadly by the Spanish supreme court: the court really looks at the purpose of SWFs in general, which is to use public wealth to make investments that serve the public interest of its nation. The court refused to accept political, administrative, or organizational differences (brought forward by the Spanish authorities) as relevant for the comparison, recognizing that each state will have its own standards as to how a SWF should be organized and operate and that those differences do not make them objectively incomparable. This makes these decisions very strong and broadly applicable precedents, and a solid legal basis for reclaims of Spanish dividend withholding tax by other foreign SWFs. Even if they are established in non-EU member states.

This decision is in line with the Supreme Court’s recent decision in the Teachers’ Pension Plan case in which it ruled that the Canadian pension fund was objectively comparable with a tax exempt Spanish pension funds and as such is entitled to a full refund of Spanish withholding tax based on the free movement of capital. With these decisions, the Spanish Supreme Court is observing and applying established ECJ case law.

If you would like to learn what this decision could mean for your organization, or if you would like to obtain a copy of the decision, please send your request to