The Explanatory Memorandum to the Draft Law amending nonresident income tax points out that the main reason for the tax reform is to adapt it, to a greater extent, to the European Union regulatory framework. The draft law includes an anti-abuse clause, similar to the one currently in force, which prevents the application of the tax exemption in Spain on dividends paid when most of the voting rights of the European Union resident shareholder are held, directly or indirectly, by individuals or legal entities that do not reside in a European Union member state.

The currently existing rule includes three exceptions to the application of the anti-abuse clause: (i) that the parent company actually performs a business activity that is directly related to the business activity performed by the Spanish subsidiary; (ii) that the purpose of the parent company is the direction and management of the Spanish subsidiary through an appropriate organization of material and human resources; or (iii) that it proves that it has been incorporated for valid economic reasons and not merely to take advantage of the exemption scheme.

With the new wording of the draft law, the current "safe harbors" are removed and are replaced by a generic requirement that the incorporation and operation of the nonresident parent company must be for "valid economic reasons" and "substantive business reasons."

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