EU Court rules on fund dividend withholding

On 17 September 2026 the Court of Justice of the European Union delivered its judgment in case C-139/25, iShares Europe ETF, at the request of the Spanish Supreme Court. The dispute concerns a US fund (a RIC) that received dividends from Spanish companies between 2007 and 2010 subject to a 15 % withholding under the Spain-US treaty, while equivalent Spanish investment funds were taxed at 1 % on the same dividends.

The Court confirms that this difference is a restriction prohibited by article 63 of the Treaty on the Functioning of the European Union and rejects Spain’s argument that there is no restriction merely because the fund is tax-transparent. The key is how the discrimination is neutralised, because on that depends whether non-resident funds can recover the difference.

What the Court says

The CJEU accepts, in line with its case law, that a treaty to avoid double taxation can neutralise this kind of discrimination, but it sets a strict test: there is neutralisation only if the treaty allows the excess tax borne in Spain to be deducted in full, in all cases, from the tax payable in the state of residence. A mechanism that only sometimes allows a full deduction is not enough. Nor is it enough that the fund could, in theory, have opted for a regime that let it deduct the withholding, if in practice it did not do so and passed income and tax credit to its investors.

The Court adds that a fund cannot be denied treaty protection for having legitimately chosen a tax regime available to it, as long as the choice is not abusive or fraudulent. And it does not close the door entirely: if the treaty lets the fund’s investors use the Spanish tax as a credit against their own tax, and they can deduct the whole excess, the discrimination would be neutralised at that level. Proving it is a question of fact and of interpreting the treaty, which it leaves to the Supreme Court.

What changes for litigation

According to the analysis of a specialist firm, the judgment affects a very significant volume of pending refund claims before the Tax Agency, the Central Economic-Administrative Tribunal and the National High Court, and directly about 80 cassation appeals in the Supreme Court, which had suspended its decision pending this ruling. The National High Court had ruled in favour of iShares in September 2022, and the State Attorney appealed.

The decisive question will be the burden of proof. The Supreme Court has so far held that it falls on the administration to show neutralisation, but it is unknown whether it will keep that approach for this type of taxpayer. According to commentators, on it will depend whether future claims by non-resident funds become considerably easier or considerably harder to win.

Who is affected, what to review

This is not a general change in the taxation of dividends. According to an analysis published on Finect, funds domiciled in the EU or the European Economic Area already pay 1 % in Spain, like Spanish ones; the judgment matters mainly for those domiciled outside them, to which higher treaty rates apply, such as the 15 % for the United States. Each case depends on the fund’s tax regime and on the position of its unit holders.

For managers, funds and investors with withholdings borne in Spain, it is advisable to review with your adviser which limitation periods remain open, how income and tax credits were passed to unit holders and what evidence exists of effective compensation. This is general information, not a recommendation about any investment or specific claim.

The judgment does not close the case: it returns it to the Supreme Court, which must decide what counts as sufficient proof.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.