Information only in English
A new tax treaty between Germany and Spain was signed on 3 February 2011 to replace the existing treaty dating from 1966. In essence, the new treaty has been brought in line with the latest version of the OECD Model Treaty (e.g. articles on general definitions, resident, permanent establishment, the exchange of information and the assistance in the collection of taxes).
A few aspects of the new treaty are notable:
- Article 2 (“Taxes Covered”): Clarification that the treaty also applies to German surcharges (e.g. the solidarity surcharge).
- Article 6 (“Immovable Property”): New article 6(4) has an anti-abuse clause: “Where the ownership of shares or other rights in a company, entitle a person to the direct or indirect enjoyment of real property held by that company, income derived from the direct use, letting or use in any other form of such right to enjoyment may be taxed in the Contracting State in which the real property is situated.”
- Article 10 (“Dividends”): Reduction of the withholding tax rate to 5 % where a parent company holds directly at least 10 % in the subsidiary (the existing treaty, as well the OECD Model, provide for a 10 % rate where the direct ownership exceeds 25 %). The 5 % rate will not be granted where the dividend recipient is a REIT (or a partnership that is mentioned in the 1966 treaty). According to the new definition, the term “dividends” also comprises earnings derived from a German investment fund.
- Articles 11 (“Interest Income”) and 12 (“Royalties”): Interest income, as well as royalties, may only be taxed in the residence state. The 1966 treaty provides for a withholding tax on interest and royalties.
- Article 13 (“Capital Gains”): Article 13 is generally brought in line with the OECD Model, i.e. gains from the alienation of shares deriving more than 50 % of their value from immovable property in the source state can be taxed in that state (article 13(2)). In case of a sale of shares which granted the owner a right to directly or indirectly use real property (i.e. cases where the current income falls under new Art. 6 (4)), the capital gain may also be taxed in the state in which the real estate is located (new article 13 (3)). Further, a new article 13(7) dealing with exit tax cases is introduced, which grants the former country of residence a right to tax capital gains from the sale of shares under its exit tax rules within certain time limits if a person has relocated from one treaty partner country to the other.
- Article 20 (“Taxation of other Income”): Article 20(3)3 introduces an anti-abuse provision for transactions that are not at arm’s length.
- Article 21 (“Taxation of Capital”): New article 21(4) is similar to the new article 13(2) (see above).
- Article 22 (“Elimination of Double Taxation”): Article 22 is newly drafted to generally provide for the methods commonly applied in the relevant country, i.e. the credit method in Spain and a combination of the credit and the exemption method in Germany.
If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.
