The interrelationship between Directive 2003/49/EC and double taxation conventions between EU member states: the doctrine of the spanish Supreme Court in the Velcro case

Abstract

This article examines the interaction between EU Tax Directive 2003/49/EC (Interest and Royalties Directive) and double tax treaties concluded between EU Member States, in light of the doctrine established by the Spanish Supreme Court in its judgment of 12 January 2026 (Velcro case). The Court held that where a royalty payment falls materially within the scope of the Directive but the harmonised exemption is denied due to the failure to meet the beneficial ownership requirement, the principle of primacy of EU law entails the non-application of the relevant bilateral tax treaty, with source taxation instead governed by domestic law.

The analysis highlights the limited scope of this doctrine, emphasising that the Supreme Court itself confined its reasoning to the specific circumstances of the case. It is argued that the alleged displacement of tax treaties may only arise in fully harmonised situations involving abusive arrangements, and cannot be extended either to situations falling outside the Interest and Royalties Directive or, in particular, to the Parent- Subsidiary Directive, which does not contain a beneficial ownership requirement. More generally, the study stresses that the relationship between EU tax directives and tax treaties is based on principles of complementarity and consistent interpretation, rather than on a broad exclusion of treaty law.