At the moment of signing 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, the undersigned have agreed upon the following provisions which shall be an integral part of the Convention.
- With reference to paragraph 3 of Article 1 (General scope)
For purposes of paragraph 3, the term “citizen” shall include a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of 10 years following such loss. For the application of this provision to a resident of a Contracting State, the competent authorities shall consult together on the purposes of such loss of citizenship.
- With reference to paragraph 1(b) of Article 2 (Taxes covered)
Notwithstanding the provisions of paragraph 1(b):
(a) a Spanish company shall be exempt from the United States personal holding company tax in any taxable year only if all of its stock is owned by one or more individuals, who are not residents or citizens of the United States, in their individual capacities for that entire year; and
(b) a Spanish company shall be exempt from the accumulated earnings tax in any taxable year only if it is a company described in paragraph 1(f) of Article 17 (Limitation on benefits).
- With reference to paragraph 1 of Article 3 (General definitions)
The Parties agreed to initiate, as soon as possible, the negotiation of a Protocol to extend the application of this Convention to Puerto Rico, taking into account the special features of the taxes applied by Puerto Rico.
- With reference to paragraph 1(d) of Article 3 (General definitions)
The term “any other body of persons” is understood to include an estate, a trust, or a partnership.
- With reference to paragraph 1 of Article 4 (Residence)
For purposes of paragraph 1 of Article 4 it is understood that:
(a) a United States citizen or an alien admitted to the United States for permanent residence (a “green card” holder) is considered to be a resident of the United States only if the individual has a substantial presence in the United States or would be a resident of the United States and not of another country under the principles of sub-paragraphs (a) and (b) of paragraph 2 of that Article;
(b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives is subject to tax in that State as the income of a resident; and
(c) the term “resident” also includes a Contracting State or a political subdivision or local authority thereof.
- With reference to Article 8 (Shipping and air transport)
For purposes of Article 8, “income from the operation of ships or aircraft in international traffic” will be defined in accordance with paragraphs 5 through 12 of the Commentary on Article 8 (Shipping, inland waterways transport and air transport) of the 1977 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital of the Organisation for Economic Co-operation and Development.
- With reference to Article 10 (Dividends)
(a) It is understood that the term “dividends” includes profits on a liquidation of a company which is a resident of a Contracting State.
(b) Sub-paragraph (a) of paragraph 2 shall not apply to income attributable, whether distributed or not, to shareholders of the Spanish corporations and entities referred to in Article 12.2 of Law 44/1978 of 8 September 1978 and Article 19 of Law 61/1978 of 27 December 1978 or successor statutes, as long as said income is not subject to the Spanish corporation tax.
(c) Sub-paragraph (a) of paragraph 2 shall not apply in the case of dividends paid by a Spanish investment institution which is subject to tax in Spain according to Article 34 or Article 35 of Law 46 of 26 December 1984 or successor statutes. Such dividends shall be taxable in Spain at the rate provided by sub-paragraph (b) of paragraph 2.
(d) Sub-paragraph (a) of paragraph 2 shall not apply in the case of dividends paid by a United States Regulated Investment Company or a Real Estate Investment Trust. In the case of dividends from a Regulated Investment Company, sub-paragraph (b) of paragraph 2 shall apply. In the case of dividends from a Real Estate Investment Trust, sub-paragraph (b) of paragraph 2 shall apply if the beneficial owner of the dividends is an individual holding a less than 25 percent interest in the Real Estate Investment Trust; otherwise, the rate of withholding applicable under domestic law shall apply.
- With reference to Article 11 (Interest)
In the case of Spain:
(a) it is understood that income derived from financial assets covered by Law 14 of 25 May 1985 or successor statutes is included in paragraph 4;
(b) in the case of the financial assets which, according to the Law referred to in the preceding paragraph, are subject to a unique withholding of tax at the time of issue, the limitation on tax provided by paragraph 2 shall not apply.
- With reference to paragraph 2 of Article 12 (Royalties)
(a) Royalties received in consideration for the use of, or the right to use, containers in international traffic, shall be taxable only in the Contracting State of which the recipient is a resident.
(b) For purposes of paragraph 2, whether a payment is in consideration for a copyright of a scientific work will be determined in accordance with the domestic law of the Contracting State in which the royalty arises.
- With reference to Article 13 (Capital gains)
(a) For purposes of Article 13, real property situated in the United States includes a United States real property interest.
(b) With respect to paragraph 3, it is understood that gains from the alienation of personal property (movable property) which are attributable to a permanent establishment which an enterprise of a Contracting State has or had in the other Contracting State and which is removed from that other Contracting State may be taxed in that other Contracting State, in accordance with its law, but only to the extent of the gain that has accrued as of the time of such removal, and may be taxed in the first- mentioned Contracting State, in accordance with its law, but only to the extent of the gain accruing subsequent to that time of removal.
(c) For purposes of paragraph 4, an alienation does not include a transfer between members of a group of companies that file a consolidated tax return, to the extent that the consideration received by the transferor consists of participations or other rights in the capital of the transferee or of another company resident in the same Contracting State that owns directly or indirectly 80 percent or more of the voting rights and value of the transferee, if:
(i) the transferor and transferee are companies resident in the same Contracting State;
(ii) the transferor or the transferee owns, directly or indirectly, 80 percent or more of the voting rights and value of the other, or a company resident in the same Contracting State owns directly or indirectly (through companies resident in the same Contracting State) 80 percent or more of the voting rights and value of each of them; and
(iii) for the purpose of determining gain on any subsequent disposition, the initial cost of the asset for the transferee is determined based on the cost it had for the transferor, increased by any cash or other property paid.
Notwithstanding the foregoing, if cash or property other than such participations or other rights is received, the amount of the gain (limited to the amount of cash or other property received), may be taxed by the other Contracting State.
- With reference to Article 14 (Branch tax)
(a) With reference to the additional tax that may be imposed under Article 14, it is understood that the tax may be imposed on income subject to tax under Article 6 (Income from real property) or paragraph 1 of Article 13 (Capital gains) only when that income is, or has been, subject to tax on a net basis.
(b) With reference to paragraph 1(b) and paragraph 2, it is understood that the term “a bank” includes a savings bank (“Cajas de Ahorro”).
- With reference to Article 15 (Independent personal services)
The term “fixed base” shall be interpreted according to the Commentary on Article 14 (Independent personal services) of the 1977 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital of the Organisation for Economic Co- operation and Development, and of any guidelines which, for the application of such Article, may be developed in the future.
- With reference to paragraph 1(d) of Article 17 (Limitation on benefits)
The tax-exempt organizations described in paragraph 1(d) of Article 17 include, but are not limited to, pension funds, pension trusts, private foundations, trade unions, trade associations, and similar organizations. In all events, a pension fund, pension trust, or similar entity organized for purposes of providing retirement, disability, or other employment benefits that is organized under the laws of a Contracting State shall be entitled to the benefits of the Convention if the organization sponsoring such fund, trust, or entity is entitled to the benefits of the Convention under Article 17.
- With reference to Article 19 (Artistes and athletes)
The provisions of paragraph 1 shall not preclude the imposition of withholding taxes at source in accordance with the domestic laws of the Contracting States. In such case, the provisions of paragraph 1 shall be made effective by way of refunding any excess taxes withheld after the close of the taxable year.
- With reference to paragraph 1(b) of Article 20 (Pensions, annuities, alimony, and child support)
The rules applicable to social security benefits also apply to pensions paid from publicly administered funds for nongovernmental services (such as payments from the Railroad Retirement Accounts in the United States).
- With reference to Article 22 (Students and trainees)
The amount of 5,000 United States dollars referred to in paragraph 1(b)(iii) and the amount of 8,000 United States dollars referred to in paragraph 2(b) includes any amount excluded or exempted from taxation under the laws of that other Contracting State.
- With reference to paragraph 1(b) of Article 24 (Relief from double taxation)
In the case of a company created during the taxable year preceding the payment of the dividend, the previous taxable year, for the purpose of paragraph 1(b), is deemed to begin on the date of creation of such company.
- With reference to paragraph 1 of Article 26 (Mutual agreement procedure)
The term “first notification” means, in the case of the United States, the Notice of Deficiency as provided for under section 6212 of the Internal Revenue Code and, in the case of Spain, the Notification of the Administrative Act of Assessment. In the case of taxes at source, the “first notification” means, in the case of both Contracting States, the date on which the tax is withheld or paid.
- With reference to Article 27 (Exchange of information and administrative assistance)
(a) Article 27 shall be interpreted consistently with the Commentary on Article 26 (Exchange of information) of the 1977 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital of the Organisation for Economic Co-operation and Development.
(b) The competent authorities of the Contracting States shall, even without previous request, exchange such information as is necessary to ensure that the benefits of the Convention are applied only to those entitled thereto.
- With reference to Article 29 (Entry into force)
In the event of substantial changes in the domestic legislation of either Contracting State or in their tax relations with other States, either by virtue of new developments in their policy regarding tax treaty negotiations or as a consequence of changes which may occur in the supranational systems of integration to which the Contracting States are Parties, the competent authorities shall consult together on the appropriateness of negotiating modification of the Convention to reflect such changes.
In witness whereof, the undersigned, being duly authorized by their respective Governments, have signed this Protocol.
Done at Madrid, in duplicate, in the English and Spanish languages, both texts being equally authentic, this twenty-second day of February, 1990.