US and Spain to amend existing income tax treaty

The amended treaty would require each country to reduce its current tax in many cases on the interest, royalty, and direct investment dividend income of residents of the other country

On January 14, 2013, the US and Spain signed a protocol (“proposed protocol” or “2013 protocol”) that would amend the existing income tax treaty and protocol (“1990 treaty” and “1990 protocol”).

The proposed protocol generally would reduce the withholding tax rate on dividends to 5%, from the current rates of 10% or 15%, where the beneficial owner of the dividends is a company that owns directly at least 10% of the voting stock of the company paying the dividends.

Interest generally would be exempt from source country taxation under the proposed protocol; this would represent the general elimination of the 10% tax permitted by the existing treaty. A 10% US tax would remain applicable to US source interest that does not qualify as “portfolio interest” under US law because it is contingent on, e.g., the issuer’s profits.

Royalties generally would be exempt from source country taxation, eliminating the taxes of 5% to 10% permitted by the existing treaty.