FISCAL RETENTIONS AND DOUBLE TAXATION TREATIES  

Aspects such as the internationalization of business or the rise of telework and the mobility of natural persons increase the importance of taxation linked to international relations in the business world. Domestic regulations of different countries usually regulate a series of withholding measures to be applied, at the source, on income earned in their territory. For example, it is common for countries to apply retentions when paying dividends, interest and royalties, among other rents, or simply invoices to non-residents. This may complicate economic relations with certain countries. It is precisely in order to promote investment momentum and, at the same time, facilitate economic relations between countries that bilateral agreements exist to allow for better fiscal treatment. These bilateral agreements are the so-called “double taxation avoidance agreements”.

WHAT ARE THE DOUBLE TAXATION TREATIES AND WHAT ARE THEY FOR?

Agreements to avoid double taxation are bilateral, inter-country agreements that allow companies to obtain better fiscal conditions in their international relations. These mainly prevent companies from having to pay twice for the same concept (double taxation). And, in addition, they deal with issues such as rules for determining tax residency, means of communication between tax administrations, and so on.

For example, if an Andorran company has a subsidiary abroad, it may be that, when the latter wants to distribute dividends to its parent company, it finds a retention that charges the dividend to be paid. Such retention could be reduced or even eliminated by a convention to avoid double taxation.

These bilateral agreements, in addition to providing legal certainty, simply by leaving the rules of the game defined and allowing to calculate the exact tax impact of the transactions carried out, represent a significant savings in taxes, by avoiding the duplication of tax bills; This favors the internationalization of companies, since the agreements allow for the expansion of Geographical markets without making such operations subject to a tax penalty that may reduce the competitiveness of companies.

For example, when an Andorran company wants to provide services to a Spanish company under the agreement to avoid double taxation, the Spanish state does not apply any retention, in its origin, when paying that invoice. Similarly, if an Andorran company has a Spanish subsidiary, when the subsidiary wants to distribute dividends to its Andorran parent, it must hold 5% (if the share exceeds 10%), rather than 19%, which is the percentage established by Spanish regulations for residents.