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- 1. In Spain, double taxation shall be avoided following either the provisions of its internal legislation or the following provisions in accordance with the internal legislation of Spain:
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- a) Where a resident of Spain derives income or owns elements of capital which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Spain shall allow:
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- (i) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in the United Kingdom;
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- (ii) as a deduction from the tax on the capital of that resident, an amount equal to the tax paid in the United Kingdom on the same elements of capital;
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- (iii) the deduction of the underlying corporation tax, which shall be given in accordance with the internal legislation of Spain.
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- Such deduction shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the same elements of capital which may be taxed in the United Kingdom.
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- b) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Spain is exempt from tax in Spain, Spain may nevertheless, in calculating the amount of tax on the remaining income (or capital) of such resident, take into account the exempted income or capital.
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- 2. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom or, as the case may be, regarding the exemption from United Kingdom tax of a dividend or of the profits of a permanent establishment arising in a territory outside the United Kingdom (which shall not affect the general principle hereof):
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- a) Spanish tax payable under the laws of Spain and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Spain (excluding in the case of a dividend tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which Spain’s tax is computed;
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- b) a dividend which is paid by a company which is a resident of Spain to a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax, when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
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- c) the profits of a permanent establishment in Spain of a company which is a resident of the United Kingdom shall be exempted from United Kingdom taxation where the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
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- d) in the case of a dividend not exempted from tax under subparagraph b) above which is paid by a company which is a resident of Spain to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit mentioned in subparagraph a) above shall also take into account the Spanish tax payable by the company in respect of its profits out of which such dividend is paid.
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- 3. For the purposes of paragraphs 1 and 2, profits, income and gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.