U.S. income tax treaty with Spain

Treaty documents and protocols

The 1990 convention is amended by a Protocol that was signed in 2013, and the Protocol replaced the dividend, interest and royalty articles. For those income types the 1990 text alone no longer gives the current rules. The IRS lists a technical explanation for the convention and another for the Protocol. The Protocol entered into force on November 27, 2019.^[1][4][5][7]

Convention article titles

• Articles 1 to 5 are General Scope; Taxes Covered; General Definitions; Residence; and Permanent Establishment.^[2]
• Articles 6 to 10 are Income from Real Property (Immovable Property); Business Profits; Shipping and Air Transport; Associated Enterprises; and Dividends.^[2]
• Articles 11 to 15 are Interest; Royalties; Capital Gains; Branch Tax; and Independent Personal Services.^[2]
• Articles 16 to 20 cover Dependent Personal Services; Limitation on Benefits; Directors' Fees; Artistes and Athletes; and Pensions and Annuities. They also address Alimony and Child Support.^[2]
• Articles 21 to 25 are Government Service; Students and Trainees; Other Income; Relief from Double Taxation; and Non-Discrimination.^[2]
• Articles 26 to 30 are Mutual Agreement Procedure; Exchange of Information and Administrative Assistance; Diplomatic Agents and Consular Officers; Entry into Force; and Termination.^[2]

Article 3 supplies general definitions used in applying the convention.

Dividends, interest, and royalties

Articles 10, 11, and 12 each allow taxation in the recipient's state of residence. Source-state taxation is permitted for dividends, subject to stated limits. Interest and royalties are taxable only in the state of the beneficial owner, with limited exceptions for certain interest.^[2]

Dividends

The residence state may tax dividends paid by a company resident in the other state. As replaced by the 2013 protocol, Article 10 caps the tax of the paying company's state at 5 percent of the gross dividend when the beneficial owner is a company holding directly at least 10 percent of the voting stock, and at 15 percent in other cases. A company that has held at least 80 percent of the voting stock for 12 months pays no source-state tax if it meets the limitation on benefits conditions.^[4]

The article's dividend definition includes income from shares and certain corporate rights treated like share income under the company's state's law. The stated caps do not apply when the beneficial owner has a permanent establishment or fixed base in the company's state and the dividend is attributable to it; the article then points to the business profits or independent personal services article.^[4]

Interest

As replaced by the 2013 protocol, Article 11 makes interest taxable only in the state of the beneficial owner. The exceptions are contingent interest from the United States that does not qualify as portfolio interest, which the United States can tax at up to 10 percent when the owner is a resident of Spain, and excess inclusions from a real estate mortgage investment conduit, which the United States taxes under its domestic law.^[4]

The article also treats interest as arising where the payer is resident, or where the payer has a permanent establishment that bears the interest. Where a special relationship pushes the interest above an arm's length amount, only the arm's length amount gets treaty treatment.^[4]

The article defines interest broadly as income from debt claims, including income from government securities and bonds. It specifically excludes late-payment charges from the convention's definition.^[4]

Royalties

Article 12, replaced by the same protocol, makes royalties taxable only in the state of the beneficial owner. The 1990 text capped source-state tax at 5, 8 or 10 percent depending on the type of right, and those caps no longer apply.^[4][2]

Royalties are defined as payments for the use of, or the right to use, copyrights of literary, artistic, scientific or other works including films and broadcast recordings, patents, trademarks, designs, plans, secret formulas or processes, and information about industrial, commercial or scientific experience.^[4]

Residence and dual residence

For convention purposes, a resident is generally a person liable to tax in a state because of domicile, residence, place of management, place of incorporation, or a similar criterion. Liability only on income from sources in that state does not meet the article's definition.^[2]

For an individual treated as resident in both states, the article first assigns residence to the state where a permanent home is available. If homes exist in both states, the test is closer personal and economic relations; if that cannot be determined, or there is no home in either, habitual abode applies.^[2]

If the individual has a habitual abode in both states or neither, nationality determines residence. If the individual is a national of both states or neither, the competent authorities are to settle the question by mutual agreement.^[2]

For a person other than an individual who is resident in both states, the competent authorities are to try to settle the question and determine how the convention applies. If they do not reach a determination, the person is not treated as resident of either state for most convention purposes. Specified exceptions cover payments under the dividends, interest, and royalties articles.^[2]

Information exchange and limitation on benefits

Article 27 calls for the competent authorities to exchange information needed to carry out the convention or domestic tax laws concerning covered taxes, where taxation is consistent with the convention. This exchange is not restricted by Article 1.^[2]

The article limits the obligations it creates. It does not require administrative measures that conflict with either state's laws or practices, information unavailable under law or ordinary administration, or information whose disclosure would reveal a protected commercial or professional matter or conflict with public policy.^[2]

The convention has a Limitation on Benefits article, Article 17. It describes categories of residents who may qualify for convention relief on income from the other state. These include individuals and governments, along with certain organizations and qualifying business or ownership circumstances. A person outside the listed categories may present the matter to the competent authority in the income's source state.^[2]

The saving clause and U.S. citizens

Article 1 states that, despite the convention, a contracting state may tax its residents and may tax its citizens by reason of citizenship as if the convention had not come into effect, subject to paragraph 4. Paragraph 4 preserves specified benefits, including relief from double taxation, non-discrimination, and mutual agreement procedure, along with listed benefits for certain individuals who are neither citizens nor immigrants of that state.^[2]

Related reading

Related treaty summaries include U.S. income tax treaty with Portugal, U.S. income tax treaty with France, and U.S. income tax treaty with Switzerland.

Questions and answers

Related resources

Related glossary terms

• Limitation on benefits: A limitation on benefits article sets conditions for entities in a treaty country to qualify for certain treaty benefits under the applicable U.S. tax treaty.
• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.

Related articles and guides

• U.S. income tax treaty with Portugal: The IRS lists Portugal's income tax treaty and Technical Explanation.

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.