On 17 September 2026, the Court of Justice ruled in Ishares Europe ETF (C-139/25) on when a tax treaty removes a restriction on the free movement of capital.
The case
A US regulated investment company received dividends from Spanish companies in the years 2007 to 2010. Spain withheld 15% under the tax treaty with the United States. Spanish investment funds paid 1% on such dividends. The fund asked for a refund of the difference. A Spanish court agreed, and the case went to the Spanish Supreme Court. Spain argued that the treaty neutralised the difference.
The ruling
A treaty can neutralise a restriction only if it compensates in full for the difference in treatment. The difference between the two rates must be deducted in full from the tax due in the other State.
Here, the fund had opted for a transparency regime and was not itself taxed on the dividends. It could not use the treaty credit on its own level. But it passed on the dividends and the related tax credit to its unit-holders, and the treaty allows the United States to give credit for tax paid on their behalf.
The restriction may therefore be neutralised at the level of the unit-holders, on one condition. They must actually be able to benefit from the treaty, in such a way that they can deduct in full the difference between the rate for non-resident funds and the rate for resident funds. It is for the Spanish court to verify this.
The Court distinguished ACC Silicones (C-572/20). That case concerned a refund made conditional on proof about set-off by shareholders, a condition that did not apply to resident companies.
What to check
- Funds with refund claims should look at what their investors can actually credit, and not only at the fund level.
- A credit that is limited by the tax due in the investor's State may not compensate in full.
- A treaty neutralises a restriction only if the full deduction is ensured in all cases, not merely in principle.
mr. J. el Khalfioui LL.M.