“Neutralisation” at shareholder level makes the WHT acceptable in theory, but subject to a very (impossibly?) high bar. The case is sent back to the Spanish Supreme court to assess could this bar ever be cleared in practice.
On 17 September 2026, the Court of Justice of the European Union issued its decision regarding reclaims of withholding tax filed on behalf of iShares Europe ETF, a US RIC. The case, managed by the ATOZ and Taxand network, deals with questions raised on WHT applied on dividend distributions from Spanish resident entities to the Fund.
In particular, the Spanish Supreme Court asked the CJEU to clarify the following:
- whether the mere availability of an option for the US RIC to claim the foreign tax credit or transfer it to its investors based on the Spain – United States (“US”) DTT was sufficient to neutralise the discriminatory effect of the Spanish WHT paid on dividends distributed from Spanish listed companies, and;
- whether it remained necessary to examine whether neutralisation had in fact occurred at investor level when the US RIC chose to transfer the income and corresponding tax credit to its investors.
In this ATOZ Alert, our Managing Partner, Keith O'Donnell, and Principal, Desislava Dimitrova, analyse the interesting approach taken by the European Court in today's ruling.