The Spanish Supreme Court, in its judgment of 12 January 2026 (Contentious-Administrative Chamber, Second Section, judgment no. 7/2026, cassation appeal no. 6111/2023, rapporteur Mr Isaac Merino Jara), known as the VELCRO case, confirms a central doctrine for the international tax planning of multinational groups with a presence in Spain: where the company that receives the royalties is not the beneficial owner because it is bound to transfer them to a third party, it is excluded both from the exemption of Directive 2003/49/EC and from the reduced rate of the tax treaty. The applicable withholding, in that case, is the general one of the Consolidated Text of the Non-Resident Income Tax Act (TRLIRNR).

It is helpful to explain the context first. Multinationals usually structure the collection of royalties from an operating company in a source State —in this case, Spain— to a parent or intermediate company in another State. If that parent resides in the European Union, the legal order provides two routes to reduce the withholding.

The first, the exemption provided for in article 14.1.m) of the TRLIRNR, which transposes article 1.1 of Directive 2003/49/EC, on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States. The second, the reduced withholding rate provided for in the bilateral treaty —in the case under review, the 6% rate of article 12 of the tax treaty between Spain and the Netherlands—.

Both routes presuppose, however, that the formal recipient also be the beneficial owner of the royalties. Where that requirement does not concur, neither operates and the applicable withholding is the general one of the TRLIRNR —at the time of the facts of the case, 24.75%—.

The case under review reflects a classic intragroup royalty structure. The Spanish company VELCRO EUROPE, S.A. (VESA), manufacturer of the group’s products, paid royalties for the licensing of the intangibles to its Dutch parent, VELCRO HOLDING, B.V. The Dutch company, in turn, transferred the royalties received —practically in their entirety— to another group company, VELCRO INDUSTRIES, B.V., resident in Curaçao.

AEAT’s Inspection reassessed the withholdings applied by VESA on the ground that VELCRO HOLDING, B.V. did not act as the beneficial owner of the royalties. The Dutch company operated as a mere channel —conduit—, without economic disposition over the income received: it was bound to transfer it to the group company located in Curaçao. The consequence: neither the exemption of Directive 2003/49/EC nor the reduced 6% rate of the Spain-Netherlands tax treaty was applicable. The correct withholding was the general one of the TRLIRNR.

The cassation question put to the Spanish Supreme Court was specifically the following. Having ruled out the application of the exemption of article 14.1.m) of the TRLIRNR because the beneficial-owner requirement does not concur, does the reduced rate of the bilateral tax treaty apply or, on the contrary, does the general rate of the TRLIRNR operate?

The Spanish Supreme Court answers by applying the general rate. The doctrine lays down a criterion that warrants unfolding in its internal logic.

The concept of beneficial owner —as it has been refined by the Court of Justice of the European Union itself in the Danish cases, T Danmark and joined cases (cases C-115/16, C-116/16, C-117/16, C-118/16 and C-119/16), judgment of 26 February 2019— operates as a cross-cutting anti-abuse clause. Its purpose is to prevent the mere formal interposition of a company in a privileged jurisdiction from allowing access to the tax benefits that the legal order reserves to the real economic holder of the income.

In the words of the Spanish Supreme Court itself, the beneficial owner is “the person to whom it corresponds to take the income with full powers; that is, without restrictions on its availability because, by contractual provisions or without them, it turns out that he must pass it on to a third party”. An entity is the beneficial owner where it “economically enjoys the royalties or licence fees, with full powers to dispose of their use, and, therefore, with no obligation whatsoever to transfer them to third parties”.

To that effect, the Court underlines a systemic point of utmost importance. The beneficial-owner clause does not operate only in respect of Directive 2003/49/EC; it operates, equally, in respect of the bilateral tax treaty. Article 12 of the Spain-Netherlands tax treaty requires —implicitly but unquestionably in the light of the OECD Model Convention and its Commentaries— that the recipient of the royalties be their beneficial owner. If it is not, the treaty provision does not apply.

Accordingly, where the receiving company is not the beneficial owner, neither the Directive exemption nor the reduced treaty rate operate. The applicable withholding is the one provided for in the domestic legislation of the source State: the 24.75% of the TRLIRNR.

In our view, the doctrine of the Spanish Supreme Court is coherent with the consolidated case law of the Court of Justice of the European Union. The Danish cases established clearly that the concept of beneficial owner is a specific manifestation of the general principle prohibiting abuse of EU law and that its requirement is projected both on the directives and on the bilateral treaties applied by the Member States. The VELCRO judgment does not innovate: it applies that doctrine to Spanish domestic law.

That said, a critical observation is in order. The application of the concept requires a demanding analysis of the economic substance of the intermediate company. It is not enough to verify that the receiving company transfers part of the income to another group entity; what is determinative is whether it has, in an economic and legal sense, the powers of management, decision and enjoyment over the income received. The VESA → HOLDING → INDUSTRIES structure of the case under review presented solid indicia of formal channelling without substance, which justifies the conclusion. In other cases —with intermediate companies endowed with employees, operating offices and autonomous business decisions— the conclusion could be different.

The practical consequence is highly relevant for international groups with intermediate companies in or from Spain. It is advisable to review, structure by structure, the economic justification of the interposed company —employees, operating offices, business decisions taken at local level, effective governance— and the contemporaneous documentation evidencing that the formal recipient of the income does, in effect, have the powers of management and disposition that the clause requires.

For defensive purposes, the documentation to prepare and preserve includes the intangible-licensing agreements between the different group companies, the board minutes of the intermediate company evidencing autonomous business decisions, the budgets and annual accounts reflecting its own operations, and, in general, any evidence to demonstrate that the intermediate company is not a mere pass-through.

In conclusion, what this new judgment of the Spanish Supreme Court makes clear is that the concept of beneficial owner operates cross-cuttingly over the regime of intragroup royalty withholdings: where the receiving company is not the beneficial owner —because it is bound, contractually or in fact, to transfer the income to a third party— neither the exemption of Directive 2003/49/EC nor the reduced rate of the bilateral tax treaty applies, and the paying company must apply the general withholding of the TRLIRNR.

Sources

  • Spanish Supreme Court, Contentious-Administrative Chamber, Second Section, judgment no. 7/2026 of 12 January 2026, cassation appeal no. 6111/2023, rapporteur Mr Isaac Merino Jara, VELCRO Europe, S.A. v. General State Administration.
  • CJEU, joined cases C-115/16, C-118/16, C-119/16 and C-299/16, T Danmark and Others, judgment of 26 February 2019: eur-lex.europa.eu.