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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: Spain: Tax spared

The agreement provides for credit to be given for tax `spared’ (see INTM161270 and INTM161280) in Spain under the provisions of Spanish law set out in Article 24(3)(a). Relief is, however, restricted to tax `spared’ in Spain for a period of ten years in respect of any one source of income.

Article 31 of Decree 3357/67, which is mentioned in Article 24(3)(a) of the agreement, provides for 95 per cent of the interest arising on certain loans to be exempt from Spanish tax. The balance of the income remains liable to Spanish tax at the full domestic rate (currently 25 per cent). Because Article 11(2) of the agreement limits Spanish tax paid or `spared’ to 12 per cent of the gross amount of the interest, so that the tax actually withheld in Spain is 1.25 per cent (that is 5 per cent of 25 per cent of the interest arising), credit for tax ‘spared’ will be limited to 10.75 per cent of the same gross amount of interest.

Article 31 of Decree 3357/67 was replaced on 27 December 1978 by Article 25(c)(i) of Law 61/78. The provisions of the article in the 1978 law are accepted to be of a substantially similar character to the provisions of the 1967 decree so that relief for tax `spared’ will continue to be available on the basis set out in the preceding sub-paragraph.

All amounts of `tax spared’ for which credit relief is given should be reported as mentioned at INTM161290.