The US Senate on July 16 ratified a protocol to the US-Spain tax treaty (Treaty Doc. 113-4), the first US ratification of a tax treaty or tax treaty protocol since 2010.
The new US-Spain tax treaty protocol, signed in 2013, was approved by a vote of 94-2, easily passing the two-thirds Senate support needed.
As expected, Senator Rand Paul (R-Ky), who disagrees with provisions in modern tax treaties that provide for exchange between tax authorities of financial account information, voted “no.” He was joined by Mike Lee (R-Utah). Not voting were Michael Bennet (D-CO), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), and Bernie Sanders (I-VT)
Three other US signed tax treaty protocols — those with Switzerland (Treaty Doc. 112-1), Japan (Treaty Doc. 114-1), and Luxembourg (Treaty Doc. 111-8) cleared the US Senate Foreign Relations Committee in late June and are expected to be taken up by the full Senate shortly.
In addition to full exchange of information, the new US-Spain tax treaty protocol includes new limitation on benefits provisions to discourage a tax avoidance practice used by multinationals known as tax treaty shopping. It also provides for binding arbitration of tax treaty disputes involving Spain and the US.
Further, the new US-Spain tax treaty protocol reduces withholding tax on interest payments to zero except in limited cases involving contingent interest and real estate mortgage conduits. Similarly, most royalty payments will now be free of withholding taxes.
The withholding tax on dividends is reduced to zero under the protocol if the beneficial owner of the dividend is a pension fund or is a company that owns at least 80% of the voting stock of the company and held those shares for at least 12 months. Withholding taxes on dividends is reduced to 5% if the beneficial owner of the dividends is a company owning 10% or more of the voting stock. Withholding tax on dividends is 15% in other cases.
The protocol will take effect three months after both Spain and the US officially notify each other that all internal steps were completed for entry into force.
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