SPAIN/EUROPE - Schemes will be able to reclaim withholding taxes from Spain after the country's government amended legislation on the tax treatment of dividends.
The change in law - approved this month - comes in response to infringement proceedings that were brought by the European Commission against Spain and several other EU member states.
It means that, as from January 1 this year, all dividends paid by Spanish companies to EU resident pension funds are tax exempt in Spain.
Dividends will still be subject to a withholding tax at a rate of 19% but schemes will be entitled to request a refund of the tax withheld.
The amendment will also mean any EU pension funds that have suffered withholding tax on dividends from Spain may be able to claim to have the tax refunded for prior years on the basis that it was paid contrary to EC law.
Deloitte tax manager Gavin Kan said: "One thing that is not certain is how long the
refund process is going to take.
"So while Spain says EU pension funds equivalent to Spanish pension funds are eligible for this refund, it doesn't say what they need to do practically in order to claim it and how long it will take in order to pay out - this is one of the key issues at the moment with other jurisdictions as well."
PricewaterhouseCoopers UK asset management tax leader Teresa Owusu-Adjei said: "I see the change in the Spanish law as a response to the complaint filed to the European Commission and also the claims for refunds that pension funds have been filing over the last five years."
She added: "There is a growing trend and the tide is turning for European pension funds investing into other countries' equities."
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