On 14 March 2024, the Dutch Ministry of Finance published a
document with an update on the ongoing and planned
(re-)negotiations of Dutch tax treaties. The document most notably
states that the Dutch government has approved a new tax treaty
between the Netherlands and Spain and will proceed with signing
this new tax treaty as soon as possible. If the formalities by both
jurisdictions are executed timely, the new tax treaty could already
be effective as soon as 1 January 2025.
Although the actual wording of the tax treaty has not yet been
published, we strongly expect that it will have a significant
impact on Spanish real estate investments by investors established
in the Netherlands. The reason being that the current tax treaty
does not include a so-called "real estate rich clause".
However, it is Dutch tax treaty policy to include such a clause in
new tax treaties, which would (shortly put) allocate capital gains
on share disposals of property rich entities to the jurisdiction
where the property is situated.
Under the current tax treaty, a capital gain on a share disposal of
a Spanish property company by a Dutch investor is in principle
allocated to the Netherlands, where the Dutch participation
exemption would typically apply. In such situation, Spain would
seek to levy tax over the capital gain based on its domestic
non-resident income tax rules at a rate of 19%.
However, as there is no real estate rich clause included in the current tax treaty, Spain is in principle not able to effectuate this taxation. This effectively means that for share disposals of Spanish property companies, a fully tax-exempt exit under the current tax treaty would possibly be replaced with a fully taxable exit subject to 19% Spanish non-resident income taxation (at least, in some cases). This can naturally have a significant impact on modeled returns.
The above is without prejudice to the possibilities of trying to argue, in some cases, that this 19% non-resident income taxation by Spain may contravene certain EU principles (e.g., considering the different regulations that would apply if the capital gain were realized by a Spanish company instead).
Originally published by 10 April, 2024
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