When will a new Spain-US Tax Treaty be in place?
A few days ago we posted a brief update on our website detailing the signature of a protocol between the Spanish and US authorities modifying and substantially improving the Tax Treaty (CDI) currently in force. The modifications are so wide-ranging in nature that we have no qualms about referring to a “new” tax treaty, even though technically speaking the current treaty remains in force, with the content of certain articles being changed while others have been removed.
Thus, under the new treaty, in certain circumstances it will be possible to pay dividends, interest and royalties from Spain to the US and vice versa without tax withholdings at source, or transfer shares in certain companies residing in the other state without any tax burden. Without doubt, this is superb news for trade and the flow of investment between the two countries. Spanish companies will now be able to weigh up projects to invest in the US on an equal footing with respect to their competitors from other states which have until now had more advantageous treaties, resulting, at the end of the day, in more favorable taxation and, as a result, a higher return on investment.
All of which is good news, up to a point. However, at an event staged on February 1 at the Tax Studies Institute to unveil the new treaty, attended by the US ambassador in Spain, Alan D. Solomon, a wide array of concerns came to light. The first of these, technical in nature, is that the new treaty contains a “leonine” profit limitation clause that will call for more in-depth analysis on the part of the tax experts as to who may or may not benefit from the new treaty. The second issue, of a strictly political nature, concerns whether or not the same fate may befall this new treaty in the US Senate as the modifications to the US treaties with Switzerland and Hungary, which have been blocked by Senator Rand Paul. Strange as it may seem, in the US one senator can bring the ratification and entry into force of an international treaty to a standstill.
In short, fingers crossed and let’s hope 2014 brings with it this new treaty, which, all thing considered, strikes us as hard to beat.