The Spanish tax authorities (Agencia Tributaria) have released a binding decision on the domestic conditions that must be met to receive the withholding tax (WHT) exemption on dividends paid by a Spanish company to a group company in another Member State, as provided for under the EU Parent Subsidiary Directive (PSD). Since the 2015 reforms, Spanish tax laws contain an anti-abuse provision whereby if the majority of the voting rights of the EU parent entity are directly or indirectly held by individuals or entities that are not tax resident in an EU country (as in the case under consideration), the availability of the exemption is subject to the condition that the incorporation and operations of the EU parent entity is for sound economic purposes and business reasons. However, in this instance, the tax authorities considered the structure to be mainly tax driven (as designed to benefit from a tax advantage), so that the WHT exemption was denied.  Businesses or funds with Spanish-sourced dividend distributions may wish to evaluate the degree of economic substance of their structures in the light of this decision. For further information, please contact Paul Hale or Enrique Clemente.