{ "attribution": { "source": "legal.exploreworldai.com", "canonical": "https://legal.exploreworldai.com/api/public/v1/judgment-text?id=eu:c-139-25", "cite_as": "NovaCopilot, legal.exploreworldai.com (https://legal.exploreworldai.com/api/public/v1/judgment-text?id=eu:c-139-25)", "license": "https://legal.exploreworldai.com/revision", "version": "legal-2026-10-08", "fingerprint": "ewai:se:711432", "proof": "sha256:37c579e3467119baf5fda36449cac0ee1b0b2ccf1d8b95846642b63f7f936467", "jurisdiction": "se", "lang": "en", "publisher": "NovaCopilot by ExploreWorld Legal", "terms": "https://legal.exploreworldai.com/om" }, "brand_source": "Source: NovaCopilot", "item": { "schema_version": "1.0.0", "id": "eu:c-139-25", "jurisdiction": "eu", "lang": "en", "brand_source": "Source: NovaCopilot", "brand": { "product": "NovaCopilot", "platform": "ExploreWorldAI", "infrastructure": "ExploreWorld Legal", "infrastructure_url": "legal.exploreworldai.com", "legal_entity": "Valkiv Ventures AB", "permanent_url": "https://legal.exploreworldai.com/novacopilot", "source": "Source: NovaCopilot", "powered_by": "Powered by NovaCopilot", "license": "https://legal.exploreworldai.com/licensvillkor" }, "sections": [ { "title": "Provisional text", "paragraphs": [] }, { "title": "JUDGMENT OF THE COURT (First Chamber)", "paragraphs": [] }, { "title": "17 September 2026 ( * )", "paragraphs": [ "para_4", "para_5", "para_6" ] }, { "title": "Administración General del Estado", "paragraphs": [ "para_8", "para_9", "para_10", "para_11", "para_12", "para_13", "para_14", "para_15", "para_16", "para_17", "para_18", "para_19", "para_20", "para_21", "para_22" ] }, { "title": "Judgment", "paragraphs": [ "para_24", "para_25" ] }, { "title": "Legal context", "paragraphs": [] }, { "title": "International law", "paragraphs": [ "para_28", "para_29", "para_30", "para_31", "para_32", "para_33" ] }, { "title": "4         Article 24(2) of that convention provides:", "paragraphs": [ "para_35" ] }, { "title": "(a)      the income tax paid to Spain by or on behalf of such citizen or resident …", "paragraphs": [ "para_37" ] }, { "title": "European Union law", "paragraphs": [] }, { "title": "5         Article 63(1) TFEU provides:", "paragraphs": [ "para_40" ] }, { "title": "6         Under Article 65 TFEU:", "paragraphs": [ "para_42", "para_43", "para_44", "para_45", "para_46" ] }, { "title": "Spanish law", "paragraphs": [ "para_48", "para_49", "para_50" ] }, { "title": "(f)      the following income from movable assets:", "paragraphs": [ "para_52", "para_53", "para_54", "para_55", "para_56" ] }, { "title": "(f)      19% in the case of:", "paragraphs": [ "para_58", "para_59" ] }, { "title": "9         Article 28(5) of the Law on Corporation Tax is worded as follows:", "paragraphs": [ "para_61", "para_62", "para_63", "para_64" ] }, { "title": "The dispute in the main proceedings and the question referred for a preliminary ruling", "paragraphs": [ "para_66", "para_67", "para_68", "para_69", "para_70", "para_71", "para_72", "para_73", "para_74", "para_75", "para_76", "para_77", "para_78", "para_79" ] }, { "title": "Consideration of the question referred", "paragraphs": [ "para_81", "para_82", "para_83", "para_84", "para_85", "para_86", "para_87", "para_88", "para_89", "para_90", "para_91", "para_92", "para_93", "para_94", "para_95", "para_96", "para_97", "para_98", "para_99", "para_100", "para_101", "para_102", "para_103", "para_104", "para_105", "para_106", "para_107", "para_108", "para_109", "para_110", "para_111", "para_112", "para_113", "para_114", "para_115", "para_116", "para_117", "para_118", "para_119", "para_120", "para_121", "para_122", "para_123" ] }, { "title": "Costs", "paragraphs": [ "para_125" ] }, { "title": "On those grounds, the Court (First Chamber) hereby rules:", "paragraphs": [ "para_127", "para_128", "para_129" ] } ], "paragraphs": [ { "text": "Provisional text", "paragraph_id": "para_1" }, { "text": "JUDGMENT OF THE COURT (First Chamber)", "paragraph_id": "para_2" }, { "text": "17 September 2026 ( * )", "paragraph_id": "para_3" }, { "text": "( Reference for a preliminary ruling – Article 63 TFEU – Free movement of capital – Taxation of dividends received by an investment fund – Tax rate – Difference in treatment between resident and non-resident investment funds – Bilateral tax convention for the avoidance of double taxation – Neutralisation of a possible restriction on the free movement of capital by means of the convention )", "paragraph_id": "para_4" }, { "text": "In Case C‑139/25,", "paragraph_id": "para_5" }, { "text": "REQUEST for a preliminary ruling under Article 267 TFEU from the Tribunal Supremo (Supreme Court, Spain), made by decision of 11 February 2025, received at the Court on 17 February 2025, in the proceedings", "paragraph_id": "para_6" }, { "text": "Administración General del Estado", "paragraph_id": "para_7" }, { "text": "v", "paragraph_id": "para_8" }, { "text": "Ishares Europe ETF,", "paragraph_id": "para_9" }, { "text": "THE COURT (First Chamber),", "paragraph_id": "para_10" }, { "text": "composed of F. Biltgen, President of the Chamber, I. Ziemele (Rapporteur), A. Kumin, S. Gervasoni and M. Bošnjak, Judges,", "paragraph_id": "para_11" }, { "text": "Advocate General: J. Richard de la Tour,", "paragraph_id": "para_12" }, { "text": "Registrar: A. Calot Escobar,", "paragraph_id": "para_13" }, { "text": "having regard to the written procedure,", "paragraph_id": "para_14" }, { "text": "after considering the observations submitted on behalf of:", "paragraph_id": "para_15" }, { "text": "–        Ishares Europe ETF, by R. Calvo Salinero, A. de la Cueva González-Cotera, M. Flores Navarro and Á. García Ruiz, abogados,", "paragraph_id": "para_16" }, { "text": "–        the Spanish Government, by A. Gavela Llopis and A. Pérez-Zurita Gutiérrez, acting as Agents,", "paragraph_id": "para_17" }, { "text": "–        the Belgian Government, by S. Baeyens and M. Van Regemorter, acting as Agents,", "paragraph_id": "para_18" }, { "text": "–        the Italian Government, by S. Fiorentino, acting as Agent, and by A. Giovannini, avvocato dello Stato,", "paragraph_id": "para_19" }, { "text": "–        the European Commission, by W. Roels and C. Urraca Caviedes, acting as Agents,", "paragraph_id": "para_20" }, { "text": "having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,", "paragraph_id": "para_21" }, { "text": "gives the following", "paragraph_id": "para_22" }, { "text": "Judgment", "paragraph_id": "para_23" }, { "text": "1         This request for a preliminary ruling concerns the interpretation of Article 63 TFEU.", "paragraph_id": "para_24" }, { "text": "2         The request has been made in proceedings between Ishares Europe ETF (‘Ishares’) and the Agencia Estatal de la Administración Tributaria (State Tax Administration Agency, Spain) (‘the tax authority’) concerning the rate of tax on the income of non-residents that was applied to dividends from investments made by Ishares in shares of Spanish companies during the financial years 2007 to 2010.", "paragraph_id": "para_25" }, { "text": "Legal context", "paragraph_id": "para_26" }, { "text": "International law", "paragraph_id": "para_27" }, { "text": "3         Article 10 of the Convention between the United States of America and the Kingdom of Spain for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed in Madrid on 22 February 1990 (‘the DTC between Spain and the United States’), provides:", "paragraph_id": "para_28" }, { "text": "‘1.      Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.", "paragraph_id": "para_29" }, { "text": "2.      However, such individuals may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:", "paragraph_id": "para_30" }, { "text": "(a)      10 percent of the gross amount of the dividends if the beneficial owner is a company which owns at least 25 percent of the voting stock of the company paying the dividend;", "paragraph_id": "para_31" }, { "text": "(b)      15 percent of the gross amount of the dividends in all other cases.", "paragraph_id": "para_32" }, { "text": "…’", "paragraph_id": "para_33" }, { "text": "4         Article 24(2) of that convention provides:", "paragraph_id": "para_34" }, { "text": "‘In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle thereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income:", "paragraph_id": "para_35" }, { "text": "(a)      the income tax paid to Spain by or on behalf of such citizen or resident …", "paragraph_id": "para_36" }, { "text": "…’", "paragraph_id": "para_37" }, { "text": "European Union law", "paragraph_id": "para_38" }, { "text": "5         Article 63(1) TFEU provides:", "paragraph_id": "para_39" }, { "text": "‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.’", "paragraph_id": "para_40" }, { "text": "6         Under Article 65 TFEU:", "paragraph_id": "para_41" }, { "text": "‘1.      The provisions of Article 63 shall be without prejudice to the right of Member States:", "paragraph_id": "para_42" }, { "text": "(a)      to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;", "paragraph_id": "para_43" }, { "text": "…", "paragraph_id": "para_44" }, { "text": "3.      The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63.", "paragraph_id": "para_45" }, { "text": "…’", "paragraph_id": "para_46" }, { "text": "Spanish law", "paragraph_id": "para_47" }, { "text": "7         Article 13 of the texto refundido de la Ley del Impuesto sobre la Renta de no Residentes (consolidated text of the Law on the tax on the income of non-residents), approved by Real Decreto Legislativo 5/2004 (Royal Legislative Decree 5/2004) of 5 March (BOE No 62 of 12 March 2004, p. 11176), provides, in paragraph 1 thereof:", "paragraph_id": "para_48" }, { "text": "‘The following income shall be regarded as income obtained in Spanish territory:", "paragraph_id": "para_49" }, { "text": "…", "paragraph_id": "para_50" }, { "text": "(f)      the following income from movable assets:", "paragraph_id": "para_51" }, { "text": "(1)      dividends and other income from holdings in the own funds of entities resident in Spain, without prejudice to the provisions of Article 118 of the [texto refundido de la Ley del Impuesto sobre Sociedades (consolidated text of the Law on Corporation Tax)] approved by Real Decreto Legislativo 4/2004 (Royal Legislative Decree 4/2004; ‘the Law on Corporation Tax’) of 5 March 2004.", "paragraph_id": "para_52" }, { "text": "…’", "paragraph_id": "para_53" }, { "text": "8         Article 25(1) of the consolidated text of the Law on the tax on the income of non-residents provides:", "paragraph_id": "para_54" }, { "text": "‘The amount of tax shall be calculated by applying the following rates to the taxable base determined in accordance with the preceding article:", "paragraph_id": "para_55" }, { "text": "…", "paragraph_id": "para_56" }, { "text": "(f)      19% in the case of:", "paragraph_id": "para_57" }, { "text": "(1)      dividends and other income from the participation in the own funds of an entity.", "paragraph_id": "para_58" }, { "text": "…’", "paragraph_id": "para_59" }, { "text": "9         Article 28(5) of the Law on Corporation Tax is worded as follows:", "paragraph_id": "para_60" }, { "text": "‘The following shall be taxed at the rate of 1%:", "paragraph_id": "para_61" }, { "text": "(a)      open-ended investment companies governed by [Ley 35/2003 de Instituciones de Inversíon Colectiva (Law 35/2003 on collective investment undertakings)] of 4 November 2003, provided that the number of shareholders required is at least that provided for in Article 9(4) of that law;", "paragraph_id": "para_62" }, { "text": "(b)      financial investment funds under that law, provided that the number of unit-holders required is at least that provided for in Article 5(4) of that law;", "paragraph_id": "para_63" }, { "text": "…’", "paragraph_id": "para_64" }, { "text": "The dispute in the main proceedings and the question referred for a preliminary ruling", "paragraph_id": "para_65" }, { "text": "10       Ishares is a collective investment undertaking that is established in the United States and meets the definition of a regulated investment company for the purposes of the Investment Company Act of 1940.", "paragraph_id": "para_66" }, { "text": "11       During the tax years 2007 to 2010, Ishares received dividends in respect of shares that it held in Spanish companies, on which tax on the income of non-residents was levied in Spain by means of a withholding tax at a rate of 15%, in accordance with Article 10(2)(b) of the DTC between Spain and the United States.", "paragraph_id": "para_67" }, { "text": "12       Wishing to be treated the same as Spanish investment funds which are subject, in respect of the dividends they receive, to a tax rate of 1%, in accordance with Article 28(5) of the Law on Corporation Tax, in the version applicable to the dispute in the main proceedings, Ishares made a number of applications seeking a refund of the difference between the amount withheld, corresponding to the tax rate of 15%, and the amount corresponding to the tax rate of 1% calculated on the gross dividend amount.", "paragraph_id": "para_68" }, { "text": "13       Since those applications were rejected, Ishares lodged complaints against the tax notices in question with the Tribunal Económico-Administrativo Central (Central Tax Tribunal, Spain), which also rejected them by a decision of 5 October 2017, on the ground that Ishares’ situation was not objectively comparable to that of Spanish collective investment undertakings, and that, in any event, the restriction on free movement resulting from the contested taxes had been neutralised.", "paragraph_id": "para_69" }, { "text": "14       Ishares brought an action against that decision before the Chamber for Contentious Administrative Proceedings of the Audiencia Nacional (National High Court, Spain), which, by judgment of 12 September 2022, granted that action and found that Ishares was entitled to a refund of the amounts claimed, together with interest from the date on which the withholding tax had been levied.", "paragraph_id": "para_70" }, { "text": "15       That court acknowledged, first of all, that regulated investment companies and collective investment undertakings were comparable, and, next, held that it had not been established that the additional tax borne by Ishares had been neutralised. Under the Spanish legislation, a withholding tax of 15% to 18% is to be levied on dividends received by regulated investment companies without the possibility of a refund, whereas, under that legislation, a rate of 1% is to be applied to dividends received by resident entities, at the same time allowing them to obtain a refund of the excess withheld, which that court considered to be discriminatory and contrary to EU law.", "paragraph_id": "para_71" }, { "text": "16       Lastly, that court held that the fact that Ishares had elected to transfer to the shareholders or unit-holders the right to apply in the United States the tax credit corresponding to the withholding tax levied in Spain did not support the assertion that the tax authority had succeeded in demonstrating complete neutralisation. According to that court, a requirement for the entities in question to prove that their unit-holders were able to neutralise the effects of the discrimination by making use of that tax credit was not justified in law. In that regard, it is for the tax authorities to prove such neutralisation by using the information exchange methods provided for by bilateral tax conventions for the avoidance of double taxation in order to obtain the necessary information, without it being possible to accept a reversal of the burden of proof on the basis of the principle of ‘ease of proof’.", "paragraph_id": "para_72" }, { "text": "17       The tax authority brought an appeal on a point of law against the judgment of 12 September 2022 before the Tribunal Supremo (Supreme Court, Spain), which is the referring court. That authority submits that the regulated investment company was able, in accordance with the DTC between Spain and the United States and the United States legislation, to neutralise in full the difference in tax treatment in Spain, by attributing the income which it had received to its shareholders or unit-holders and by transferring to them the tax credit corresponding to the withholding tax levied in Spain. According to that authority, it is irrelevant whether or not neutralisation takes place from the point of view of the unit-holders. The authority further submits that the unit-holders have been able to deduct in full the actual tax borne by Ishares in Spain, by deducting 15% in their tax return, which is equivalent to the taxation to which dividends are subject in the United States.", "paragraph_id": "para_73" }, { "text": "18       The referring court states that, under the United States legislation, regulated investment companies are to carry out their activities as investment agents on behalf of their shareholders or unit-holders, generally investing in securities and government bonds and distributing the profits from those investments in the form of dividends. Those entities are taxed as United States corporate taxpayers at a rate of 15% or more, but may under certain conditions irrevocably elect the special tax regime provided for regulated investment companies.", "paragraph_id": "para_74" }, { "text": "19       Under that special regime, which ensures transparency of regulated investment companies for tax purposes, the income which they receive is not taxed in their name, but is attributed to their shareholders or unit-holders, and therefore taxed in the name of those shareholders or unit-holders, to whom those entities also have the possibility of transferring the ‘foreign tax credit’.", "paragraph_id": "para_75" }, { "text": "20       According to the referring court, it is established that Ishares transferred such a tax credit to its unit-holders, without it being established, however, that those unit-holders succeeded in neutralising the tax burden arising in Spain. Furthermore, it is common ground that, if Ishares had elected to be subject to United States corporation tax itself, in order to be able to deduct the withholding taxes levied on the foreign-source dividends received by it, that choice would have bound it in respect of all of its income and not only in respect of income derived in Spain.", "paragraph_id": "para_76" }, { "text": "21       The referring court adds that the DTC between Spain and the United States provides for mechanisms designed to neutralise the difference in treatment applied to dividends paid by Spanish companies to regulated investment companies. Furthermore, if Ishares had not elected to transfer to its shareholders or unit-holders the right to use in the United States the tax credit corresponding to the withholding tax levied in Spain, it would have been taxed at a rate which would have enabled it to deduct in full the amount paid by way of a tax on the income of non-residents withheld in Spain at the rate of 15%, provided that that amount exceeded the amount taxed at a rate of 1%, applied to resident collective investment undertakings.", "paragraph_id": "para_77" }, { "text": "22       In those circumstances the Tribunal Supremo (Supreme Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:", "paragraph_id": "para_78" }, { "text": "‘In accordance with Article 63 TFEU, can any restriction on the free movement of capital arising from the legislation on [the tax on the income of non-residents] be considered to be neutralised where a non-resident entity which is equivalent to a resident harmonised investment fund may, under the applicable double taxation convention and the domestic legislation of its country of residence to which reference is made, elect to be taxed in the hands of the entity itself, even though ultimately it does not do so since it decides to transfer its credit to the fund [unit-holders], bearing in mind that the right to elect to be taxed under the law of the State of residence could allow it to deduct, in principle, all the excess tax paid in respect of [the tax on the income of non-residents], even though such a decision is binding on it with regard to all income derived by it?’", "paragraph_id": "para_79" }, { "text": "Consideration of the question referred", "paragraph_id": "para_80" }, { "text": "23       By its question referred for a preliminary ruling, the referring court asks, in essence, whether Article 63 TFEU must be interpreted as meaning that a possible restriction on the free movement of capital may be considered to be neutralised by the application of a bilateral tax convention for the avoidance of double taxation, concluded between the State of residence of a collective investment undertaking and the Member State in which the dividends are paid, where that collective investment undertaking benefits, in its State of residence, from a tax transparency regime under which it is not taxed on the dividends received and transfers to its unit-holders those dividends and the tax credit corresponding to the withholding tax levied in the Member State in which those dividends are paid.", "paragraph_id": "para_81" }, { "text": "24       Although the question referred for a preliminary ruling relates principally to the conditions under which a possible restriction on the free movement of capital may be neutralised by the application of a bilateral tax convention for the avoidance of double taxation, it should be noted that the governments which submitted observations to the Court of Justice have disputed both that there is such a restriction and that the situation of a non-resident, fiscally transparent collective investment undertaking is comparable to that of a resident collective investment undertaking.", "paragraph_id": "para_82" }, { "text": "25       In those circumstances, it is necessary, in the first place, to determine whether the legislation at issue in the main proceedings is capable of constituting a restriction on the free movement of capital.", "paragraph_id": "para_83" }, { "text": "26       In that regard, it should be recalled that Article 63(1) TFEU lays down a general prohibition on restrictions on movements of capital between Member States and between Member States and third countries (see, inter alia, judgments of 30 April 2025, Finanzamt für Großbetriebe , C‑602/23, EU:C:2025:290, paragraph 44, and of 30 October 2025, Attal et Associés , C‑321/24, EU:C:2025:836, paragraph 28).", "paragraph_id": "para_84" }, { "text": "27       The concept of a ‘restriction’, within the meaning of Article 63 TFEU, includes State measures which are discriminatory in nature in that they establish, directly or indirectly, a difference in treatment between domestic and cross-border movements of capital which does not correspond to an objective difference in circumstances, and which are therefore liable to deter natural or legal persons from other Member States or third countries from carrying out cross-border movements of capital (judgment of 30 April 2025, Finanzamt für Großbetriebe , C‑602/23, EU:C:2025:290, paragraph 45 and the case-law cited).", "paragraph_id": "para_85" }, { "text": "28       Accordingly, the less favourable treatment by a Member State of income paid to non-resident collective investment undertakings, compared with the treatment of income paid to resident collective investment undertakings, is liable to deter undertakings established in another State from pursuing investments in that Member State and, consequently, amounts to a restriction of the free movement of capital, prohibited, in principle, under Article 63 TFEU (judgment of 30 April 2025, Finanzamt für Großbetriebe , C‑602/23, EU:C:2025:290, paragraph 46 and the case-law cited).", "paragraph_id": "para_86" }, { "text": "29       The application to dividends paid to non-resident collective investment undertakings of a tax burden heavier than that borne by resident collective investment undertakings in respect of the dividends paid to them constitutes such less favourable treatment (see, to that effect, judgment of 7 November 2024, XX (Unit-linked contracts) , C‑782/22, EU:C:2024:932, paragraph 30 and the case-law cited).", "paragraph_id": "para_87" }, { "text": "30       In the present case, it is apparent from the request for a preliminary ruling that, under the Spanish legislation at issue in the main proceedings, dividends distributed to a resident collective investment undertaking are subject to corporation tax at the rate of 1%, whereas dividends distributed to a collective investment undertaking established in the United States are subject to tax on the income of non-residents at the rate of 15%, in accordance with Article 10(2)(b) of the DTC between Spain and the United States.", "paragraph_id": "para_88" }, { "text": "31       Dividends paid to non-resident collective investment undertakings are therefore subject to less favourable tax treatment compared to dividends paid to resident collective investment undertakings.", "paragraph_id": "para_89" }, { "text": "32       That finding cannot be called into question by the Spanish Government’s line of argument that the legislation at issue in the main proceedings does not constitute a restriction on the free movement of capital at the level of Ishares, since Ishares is not taxed by way of United States corporation tax on dividends received in Spain, and has transferred to its unit-holders the dividends and the taxes paid on those dividends in Spain, without being subject to that latter taxation.", "paragraph_id": "para_90" }, { "text": "33       It should be noted in that regard that the fact that, as in the case in the main proceedings, that non-resident collective investment undertaking is not subject to taxation in its State of residence or that it passes on the tax burden in respect of the dividends which it receives to its unit-holders under the tax transparency regime has no bearing on the finding that the dividends received by that collective investment undertaking are subject to a higher tax burden than dividends distributed to resident collective investment undertakings, merely because Spain has exercised its tax jurisdiction.", "paragraph_id": "para_91" }, { "text": "34       Furthermore, the fact that dividends distributed to a non-resident entity incur a heavier tax burden in Spain than that to which dividends paid to a resident collective investment undertaking are subject precludes, contrary to what the Spanish Government claims, the considerations of the Court in the judgment of 30 April 2025, Finanzamt für Großbetriebe (C‑602/23, EU:C:2025:290), from being applied to the present case.", "paragraph_id": "para_92" }, { "text": "35       It is true that, in the circumstances of the case which gave rise to the judgment of 30 April 2025, Finanzamt für Großbetriebe (C‑602/23, EU:C:2025:290), the Court held, in essence, that Article 63 TFEU does not preclude the application of national legislation laying down a tax regime for resident investment funds to a non-resident entity which has the same characteristics as a resident investment fund but has legal personality and is, in that regard, comparable to a resident legal person, even though, under that national legislation, a resident investment fund is considered to be transparent for tax purposes and cannot operate as a legal person, and that that application is conditional on the income received by the non-resident entity being attributed to its unit-holders and on the taxation, in its State of residence, not at the level of that entity, but at the level of its unit-holders. However, the Court adopted that interpretation on the condition that the dividends distributed to a non-resident entity are not subject to a heavier tax burden in the State in which the dividends are distributed as compared to dividends paid to a resident investment fund (see judgment of 30 April 2025, Finanzamt für Großbetriebe . C‑602/23, EU:C:2025:290, paragraphs 51 and 64).", "paragraph_id": "para_93" }, { "text": "36       In those circumstances, it must be stated that the legislation at issue in the main proceedings, which provides that dividends distributed to a collective investment undertaking established in the United States are subject to tax on the income of non-residents at a rate of 15%, whereas dividends distributed to a resident collective investment undertaking are subject to corporation tax in Spain at a rate of 1%, constitutes a restriction on the free movement of capital, which is prohibited, in principle, by Article 63(1) TFEU.", "paragraph_id": "para_94" }, { "text": "37       That being said, it should be noted, in the second place, that, under Article 65(1)(a) TFEU, Article 63 TFEU is to be without prejudice to the right of Member States to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested.", "paragraph_id": "para_95" }, { "text": "38       It is apparent from settled case-law that Article 65(1)(a) TFEU, in so far as it is a derogation from the fundamental principle of the free movement of capital, must be interpreted strictly. That provision cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers based on their place of residence or the State in which they invest their capital is automatically compatible with the FEU Treaty (judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds) , C‑342/20, EU:C:2022:276, paragraph 67 and the case-law cited).", "paragraph_id": "para_96" }, { "text": "39       The differences in treatment permitted by Article 65(1)(a) TFEU must not constitute, according to Article 65(3) TFEU, a means of arbitrary discrimination or a disguised restriction. The Court has held, consequently, that such differences in treatment are permitted only when they concern situations which are not objectively comparable or, otherwise, when they are justified by an overriding reason in the public interest (judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds) , C‑342/20, EU:C:2022:276, paragraph 68 and the case-law cited).", "paragraph_id": "para_97" }, { "text": "40       It is clear from the case-law of the Court, first, that the comparability or otherwise of a cross-border situation with a domestic situation must be examined having regard to the objective pursued by the provisions of the national legislation concerned and to the purpose and content of those provisions, and, second, that only the relevant distinguishing criteria established by that legislation must be taken into account for the purpose of assessing whether the difference in treatment resulting from that legislation reflects a difference in objective situation (see, to that effect, judgment of 27 April 2023, L Fund , C‑537/20, EU:C:2023:339, paragraph 54 and the case-law cited).", "paragraph_id": "para_98" }, { "text": "41       It is apparent from the national legislation reproduced in the request for a preliminary ruling that, in Spain, open-ended investment companies and financial investment funds are subject to corporation tax at a rate of 1%, provided that the conditions laid down in Article 28(5) of the Law on Corporation Tax are satisfied.", "paragraph_id": "para_99" }, { "text": "42       Although the referring court has not provided details concerning the objective pursued by the national legislation, that legislation appears to have as its purpose the alleviation of double taxation of those dividends, for the legal persons to which it refers and their shareholders or unit-holders. It must be recalled that the Court has previously held that, in relation to measures laid down by a Member State in order to prevent or mitigate the imposition of a series of charges to tax on, or the economic double taxation of, income distributed by a resident company, resident collective investment undertakings receiving income are not necessarily in a situation which is comparable to that of non-resident collective investment undertakings receiving income (see, to that effect, judgment of 17 March 2022, AllianzGI-Fonds AEVN , C‑545/19, EU:C:2022:193, paragraph 64 and the case-law cited).", "paragraph_id": "para_100" }, { "text": "43       However, as soon as a Member State, whether unilaterally or by way of a convention, subjects not only resident collective investment undertakings but also non-resident collective investment undertakings to tax on the income which they receive from a resident company, the situation of those non-resident collective investment undertakings becomes comparable to that of the resident collective investment undertakings (see, to that effect, judgment of 17 March 2022, AllianzGI-Fonds AEVN , C‑545/19, EU:C:2022:193, paragraph 65).", "paragraph_id": "para_101" }, { "text": "44       As regards the assessment whether the situation of resident collective investment undertakings subject to corporation tax at a rate of 1% is comparable to that of the non-resident collective investment undertakings at issue in the main proceedings, which is a matter for the referring court, it should be noted that it is apparent from the request for a preliminary ruling and, in particular, from the wording of the question referred for a preliminary ruling, that the referring court considers that the United States regulated investment companies and the Spanish collective investment undertakings are in objectively comparable situations.", "paragraph_id": "para_102" }, { "text": "45       It is therefore necessary to examine, in the third place, whether the restriction on the free movement of capital which arises from the application of a tax rate on the dividends paid to a non-resident collective investment undertaking that is higher than the tax rate applied to dividends paid to a resident collective investment undertaking may be regarded as neutralised where a bilateral tax convention provides for a mechanism for the avoidance of double taxation, if that investment fund benefits, in its State of residence, from a tax transparency regime under which it is not taxed on the dividends received and transfers to its unit-holders those dividends and the tax credit corresponding to the amount withheld on those dividends.", "paragraph_id": "para_103" }, { "text": "46       It is clear from the Court’s case-law that the objective of ensuring equivalent treatment of dividends paid to resident and non-resident taxpayers may be attained by means of a convention for the avoidance of double taxation concluded with another Member State or with a third State (see, to that effect, judgment of 8 November 2007, Amurta , C‑379/05, EU:C:2007:655, paragraphs 78 and 79 and the case-law cited, and order of 21 January 2020, Estado do Canadá , C‑613/18, EU:C:2020:19, paragraph 34), provided that its application enables the effects of the difference in treatment under national legislation to be compensated for in full (judgment of 16 June 2022, ACC Silicones , C‑572/20, EU:C:2022:469, paragraph 44).", "paragraph_id": "para_104" }, { "text": "47       The difference in treatment between dividends distributed to non-resident taxpayers and those distributed to resident taxpayers does not disappear unless the tax withheld at source under that legislation can be set off against the tax due in the other State in the full amount of the difference in treatment arising under the national legislation (see judgment of 16 June 2022, ACC Silicones , C‑572/20, EU:C:2022:469, paragraph 45).", "paragraph_id": "para_105" }, { "text": "48       The Court also held that in order to attain the objective of neutralisation, the application of the method of deduction should enable the tax on dividends levied by the Member State in which the dividends are paid to be deducted in its entirety from the tax due in the State of residence of the taxpayer receiving those dividends in such a way that, if those dividends are ultimately taxed more heavily than the dividends paid to taxpayers residing in the Member State from which those dividends are paid, that heavier tax burden may no longer be attributed to that Member State, but to the State of residence of the recipient taxpayer which exercised its power to impose taxes (judgment of 17 September 2015, Miljoen and Others , C‑10/14, C‑14/14 and C‑17/14, EU:C:2015:608, paragraph 80).", "paragraph_id": "para_106" }, { "text": "49       The Court added that a mechanism forming part of a bilateral tax convention which provided that the credit as regards tax levied in the Member State in which the dividends were paid was limited to the tax of the State of residence, calculated on those dividends, did not appear capable of guaranteeing in all cases that the difference in treatment resulting from the national legislation would be compensated for, such compensation being possible only where the amount of tax in the State of residence of the dividends recipient calculated on the dividends distributed is at least equal to the amount of the withholding tax levied in the Member State in which the dividends are paid (see, to that effect, judgment of 16 June 2022, ACC Silicones , C‑572/20, EU:C:2022:469, paragraphs 46 and 47).", "paragraph_id": "para_107" }, { "text": "50       It follows from the case-law referred to in paragraphs 46 to 49 above that, in order for the difference in treatment to be regarded as neutralised, the application of the bilateral tax convention for the avoidance of double taxation must ensure that, in all cases, the amount corresponding to the difference in the tax rates applied to resident collective investment undertakings and non-resident collective investment undertakings, respectively, is deducted in full, on the basis of that convention, from the tax payable by the collective investment undertaking in question in its State of residence.", "paragraph_id": "para_108" }, { "text": "51       In the present case, the referring court, the governments which have submitted observations and the European Commission claim that the DTC between Spain and the United States allows for such a deduction in full, while Ishares disputes that assessment, arguing that Article 24(2) of that DTC provides for an ordinary credit system, and that, contrary to what that court claims, it is not possible to conclude automatically that that DTC allows the withholding tax to be neutralised, given that any deduction in the United States of the tax borne in Spain is in any event contingent on the provisions adopted unilaterally by the United States in their domestic legislation and on the limitations which they may impose to that end.", "paragraph_id": "para_109" }, { "text": "52       In that regard, in proceedings under Article 267 TFEU, it is not for the Court to interpret the provisions of a tax convention concluded between a Member State and a third State (order of 21 January 2020, Estado do Canadá , C‑613/18, EU:C:2020:19, paragraph 20).", "paragraph_id": "para_110" }, { "text": "53       It is therefore for the referring court to determine whether the application of the DTC between Spain and the United States allows such a deduction in full.", "paragraph_id": "para_111" }, { "text": "54       That being said, even supposing that the DTC between Spain and the United States allowed for a deduction in full of the tax paid by Ishares in Spain from the tax which Ishares must pay in the United States, it is apparent from the request for a preliminary ruling that, in the present case, Ishares could not, in any event, itself benefit from such a deduction, since it transferred the dividends and passed on the tax paid on those dividends in Spain to its unit-holders, in the form of a tax credit, in the framework of a special tax transparency regime, without being taxed on those dividends in the United States.", "paragraph_id": "para_112" }, { "text": "55       Thus, such a possibility of deduction is, for a taxpayer such as Ishares, only theoretical.", "paragraph_id": "para_113" }, { "text": "56       It cannot be claimed that a Member State has succeeded in ensuring compliance with its obligations by concluding a bilateral tax convention for the avoidance of double taxation where a non-resident collective investment undertaking, which has opted for a tax regime provided for by the legislation of its State of residence and which is not alleged to have done so in an abusive or fraudulent manner, cannot, on account of that tax regime, even though that regime was not imposed on that non-resident collective investment undertaking but was elected by it, enjoy the protection of that convention.", "paragraph_id": "para_114" }, { "text": "57       In such a situation, the difference in treatment is not neutralised.", "paragraph_id": "para_115" }, { "text": "58       It is true, as the Spanish Government submits, that it follows from the case-law that the free movement of capital cannot be understood as meaning that a Member State is required to adjust its tax rules on the basis of those of another State in order to ensure, in all circumstances, taxation which removes any disparities arising from national tax rules, given that the decisions made by a taxpayer as to investment in another Member State may be to the taxpayer’s advantage or not, according to circumstances (judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds) , C‑342/20, EU:C:2022:276, paragraph 59 and the case-law cited).", "paragraph_id": "para_116" }, { "text": "59       However, in the present case, the alleged unfavourable treatment stems from the difference in treatment introduced by the Spanish legislation at issue in the main proceedings and not from a disparity between the Spanish and United States tax rules.", "paragraph_id": "para_117" }, { "text": "60       It must be noted, however, that, in accordance with Article 24(2)(a) of the DTC between Spain and the United States, the United States allows its residents or citizens to credit against United States income tax not only income tax paid in Spain by them but also such tax paid on their behalf.", "paragraph_id": "para_118" }, { "text": "61       Consequently, it cannot be ruled out that that DTC may be interpreted as providing for the possibility for Ishares’ unit-holders to benefit from the deduction or the tax credit corresponding to the withholding tax levied in Spain on the dividends, which it is for the referring court to ascertain.", "paragraph_id": "para_119" }, { "text": "62       The taking into consideration of the possibilities reserved to unit-holders is not, in the present case, called into question by the judgment of 16 June 2022, ACC Silicones (C‑572/20, EU:C:2022:469, paragraph 48), in which the Court ruled out the possibility of offsetting the tax levied in the State in which the dividends were paid at the level of the direct or indirect shareholders of a non-resident company receiving those dividends.", "paragraph_id": "para_120" }, { "text": "63       The case which gave rise to the judgment of 16 June 2022, ACC Silicones (C‑572/20, EU:C:2022:469), concerned national legislation which made the reimbursement of the tax on income from capital paid on dividends received by a non-resident company subject to proof that that tax cannot be set off or be carried forward by that company or by its direct or indirect shareholders, even though such a condition was not imposed on resident companies. By contrast, the present case concerns a possible neutralisation, on the basis of the DTC between Spain and the United States, of a difference in treatment as regards the taxation of dividends received by non-resident collective investment undertakings that have opted for a tax transparency regime, by way of a deduction granted to the unit-holders of those collective investment undertakings on the basis of that DTC.", "paragraph_id": "para_121" }, { "text": "64       In order to be able to find that that difference in treatment is neutralised by the application of that DTC in favour of the unit-holders, the referring court must satisfy itself that those unit-holders can actually benefit from that application and that that application allows, in accordance with the case-law referred to in paragraphs 46 to 49 above, those unit-holders to deduct in full from the tax which they must pay in their State of residence the amount corresponding to the difference between, on the one hand, the tax rate applied in the Member State in which the dividends are paid to dividends paid to non-resident collective investment undertakings and, on the other, the tax rate applied to dividends paid to resident collective investment undertakings.", "paragraph_id": "para_122" }, { "text": "65       In the light of all the foregoing, the answer to the question referred for a preliminary ruling is that Article 63 TFEU must be interpreted as meaning that a restriction on the free movement of capital may be considered to be neutralised by the application of a bilateral tax convention for the avoidance of double taxation, concluded between the State of residence of a collective investment undertaking and the Member State in which dividends are paid, where that collective investment undertaking benefits, in its State of residence, from a tax transparency regime under which it is not taxed on the dividends received and transfers to its unit-holders those dividends and the tax credit corresponding to the withholding tax levied in the Member State in which those dividends are paid, provided that those unit-holders can actually benefit from such an application, inasmuch as that application allows them to deduct in full from the tax payable by them in their State of residence the amount corresponding to the difference between, on the one hand, the tax rate applied in the Member State in which the dividends are paid to dividends paid to non-resident collective investment undertakings and, on the other, the tax rate applied to dividends paid to resident collective investment undertakings.", "paragraph_id": "para_123" }, { "text": "Costs", "paragraph_id": "para_124" }, { "text": "66       Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.", "paragraph_id": "para_125" }, { "text": "On those grounds, the Court (First Chamber) hereby rules:", "paragraph_id": "para_126" }, { "text": "Article 63 TFEU must be interpreted as meaning that a restriction on the free movement of capital may be considered to be neutralised by the application of a bilateral tax convention for the avoidance of double taxation, concluded between the State of residence of a collective investment undertaking and the Member State in which dividends are paid, where that collective investment undertaking benefits, in its State of residence, from a tax transparency regime under which it is not taxed on the dividends received and transfers to its unit-holders those dividends and the tax credit corresponding to the withholding tax levied in the Member State in which those dividends are paid, provided that those unit-holders can actually benefit from such an application, inasmuch as that application allows them to deduct in full from the tax payable by them in their State of residence the amount corresponding to the difference between, on the one hand, the tax rate applied in the Member State in which the dividends are paid to dividends paid to non-resident collective investment undertakings and, on the other, the tax rate applied to dividends paid to resident collective investment undertakings.", "paragraph_id": "para_127" }, { "text": "[Signatures]", "paragraph_id": "para_128" }, { "text": "*       Language of the case: Spanish.", "paragraph_id": "para_129" } ], "word_count": 6406, "cites": [ "C-602/23", "C-321/24", "C-782/22", "C-342/20", "C-537/20", "C-545/19", "C-379/05", "C-613/18", "C-572/20", "C-10/14", "C-14/14", "C-17/14" ], "cited_by": [], "sha256": "b754e9d1f51ddf43003f9136aa719caefe417841b1fe85dc068f9461bfffda37", "source_url": "https://publications.europa.eu/resource/celex/62025CJ0139", "fetched_at": "2026-09-29T04:22:22.433+00:00", "canonical": "https://legal.exploreworldai.com/ai/judgments/eu/c-139-25", "risk_graph": "https://legal.exploreworldai.com/api/public/v1/risk?id=eu:c-139-25", "relations_graph": "https://legal.exploreworldai.com/api/public/v1/relations?id=eu:c-139-25", "changes": "https://legal.exploreworldai.com/api/public/v1/eu-praxis/changes", "agent": "https://legal.exploreworldai.com/api/public/v1/eu-praxis/agent?id=eu:c-139-25", "verification": { "stored_sha256": "b754e9d1f51ddf43003f9136aa719caefe417841b1fe85dc068f9461bfffda37", "recomputed_sha256": "b754e9d1f51ddf43003f9136aa719caefe417841b1fe85dc068f9461bfffda37", "intact": true, "checked_at": "2026-10-08T08:23:54.437Z" } }, "hash": "sha256:37c579e3467119baf5fda36449cac0ee1b0b2ccf1d8b95846642b63f7f936467", "version": "legal-2026-10-08", "expires": "2026-10-09T00:00:00.000Z", "dependency": { "index_version": "legal-2026-10-08+legal-2026-10-08+2026-10-08T07:31:53", "content_hash": "sha256:37c579e3467119baf5fda36449cac0ee1b0b2ccf1d8b95846642b63f7f936467", "revalidate_after": "2026-10-08T09:23:55.383Z", "max_copy_age_seconds": 3600, "policy": "revalidate-required; attribution-preferred", "changelog": "https://legal.exploreworldai.com/api/public/v1/dependency", "verify": "https://legal.exploreworldai.com/api/public/v1/verify", "stale_copy_invalid": true }, "canonical": "https://legal.exploreworldai.com/api/public/v1/judgment-text?id=eu:c-139-25", "disclaimer": "Source reference with official identifier. 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