International double taxation on dividends: new Madrid High Court criterion in Personal Income Tax

Can you deduct more than 15%? New tax criterion on foreign dividends

A recent Madrid High Court ruling on international double taxation deduction under Personal Income Tax (Judgment No. 30/2026, dated January 26) has been published. However, the practical scope of this criterion and its broader application require further analysis before drawing operational conclusions.

The case arises from a common scenario: a Spanish tax resident receiving foreign dividends and subject to withholding taxes exceeding the limits established in Double Taxation Agreements. Until now, the Spanish tax authorities limited the deduction to 15%, requiring taxpayers to reclaim any excess directly from foreign authorities.

However, the Court departs from this approach and emphasizes that the purpose of the deduction is to avoid actual double taxation. Accordingly, it considers that the deduction should be calculated based on the amount effectively withheld abroad.

Thus, the Madrid High Court interprets that the 15% limit should not be automatically applied in all cases, allowing taxpayers to deduct the full amount of foreign withholding, even when it exceeds that threshold.

This ruling represents a significant shift in international tax criteria, potentially benefiting taxpayers with cross-border investments, especially where withholding exceeds treaty limits.