A recent Spanish court decision has significant consequences for non-resident investors receiving Spanish-source income. On 28 July 2025, the Spanish National Court ruled that denying refunds of Spanish dividend withholding tax to non-resident companies in a loss-making position violates EU law.

The Court found this tax treatment to be discriminatory, breaching the EU principle of free movement of capital. Under Spanish law, a resident company that incurs losses in a given year can recover in full any withholding tax levied on dividends received that year (through a refund in its corporate tax return). Non-resident companies, by contrast, had no mechanism to reclaim such tax, leaving them at a disadvantage compared to equivalent Spanish companies. Applying recent CJEU case law confirming that such unequal treatment is unlawful, the National Court held that Spain must extend the same tax relief to non-residents to comply with EU non-discrimination principles.

The case in question involved a UK corporation that received dividends from Spain during 2012–2015 and 2017 while it was in a tax-loss position. Because the company had no profits in those years, the Spanish withholding taxes on the dividends became a final tax cost (the company could not utilize a foreign tax credit due to its losses). Citing CJEU’s guidance, the National Court concluded that this outcome infringed EU law and that the non-resident should be placed on equal footing with a resident taxpayer. Consequently, the Court ordered the Spanish tax authorities to refund the withheld taxes to the company, together with late-payment interest. The judgment (No. 3629/2025) was not appealed by the Tax Agency and has become final, cementing its authority as a precedent.

This landmark ruling opens the door for other foreign companies to claim refunds of Spanish withholding tax in similar circumstances. In essence, non-resident companies that suffered Spanish withholding on dividends or other passive income during a period of tax losses may now have grounds to seek a refund of the tax paid. The principle extends to any situation where domestic law granted a tax benefit to resident investors that was denied to non-residents, without justification under EU law. Affected non-resident taxpayers should review their positions and consider filing refund claims or rectifying past tax returns (within the applicable four-year limitations period) to recover unduly paid Spanish.

The Spanish National Court has asked the Constitutional Court to assess the constitutionality of the rule that disallows deducting losses on disposals of shareholdings (Article 21.6 CIT Law) introduced by Royal Decree‑Law 3/2016. In its order of 14 July 2025 (case no. 1506/2023), the Court suggests the measure may exceed decree‑law limits and affect the duty to contribute according to economic capacity. The underlying proceedings are pending the Constitutional Court’s decision.

Background and context

Royal Decree‑Law 3/2016 tightened several Corporate Income Tax rules, including Article 21.6 CIT Law (non‑integration of losses on disposals of qualifying shareholdings). The Constitutional Court’s Judgment 11/2024 already struck down other RDL 3/2016 measures for altering essential elements of the tax via decree‑law. The National Court now questions whether Article 21.6 similarly affects the taxable basebeyond decree‑law limits.

What is at stake

If the Constitutional Court declares Article 21.6 CIT Law unconstitutional, the non‑deductibility rule would be invalid. Taxpayers could consider rectifying self‑assessments and, where applicable, seeking refunds with interest, subject to how the Court defines the temporal effects of its decision.

Practical implications and potential opportunities

Taxpayers should identify transactions in open periods where capital losses on disposals were excluded under Article 21.6 CIT Law and review filed returns to quantify add‑backs and consider timely protective actions in light of the four‑year statute of limitations. Given the case is stayed and the outcome uncertain, weigh the benefits of safeguarding rights within limitation periods against the uncertainties inherent in constitutional litigation and the possibility that any decision potential limits on retroactive recovery.

We will monitor the Constitutional Court’s admission and judgment. In the meantime, taxpayers may wish to map affected periods and quantify potential exposures to be ready if opportunities arise.