CJUE 17 September 2026 Case C‑139/25 (Ishares Europe ETF) taxation of dividends received by a non-resident investment fund.

Ishares Europe ETF, a US-resident regulated investment company, received dividends from Spanish companies between 2007 and 2010, subject to a 15% withholding tax under the Spain–US tax treaty, while comparable Spanish resident investment funds were subject to corporate income tax at a rate of 1%. Under its US tax transparency regime, Ishares was not itself taxed on the dividends received; it transferred them to its unit-holders together with the tax credit corresponding to the Spanish withholding tax.

The question referred was the following: the restriction on the free movement of capital resulting from this difference in tax rates could be regarded as neutralized by the bilateral tax treaty on the ground that the fund could have elected to be taxed itself in the United States and thereby deducted the excess Spanish tax in full even though it did not exercise that option and instead transferred the tax credit to its unit-holders.

The Court confirms that the rate differential constitutes a restriction under Article 63 TFEU between comparable situations. Neutralization by treaty requires full and effective compensation, not a merely theoretical possibility.

Since Ishares never exercised the option to be taxed itself, and bore no US tax liability against which the Spanish withholding tax could be credited, neutralization cannot be established at the level of the fund on that basis.

The Court holds, however, that neutralization may be assessed at the level of the unit-holders, since Article 24(2)(a) of the treaty allows a credit for tax paid "by, or on behalf of," US residents distinguishing this case from ACC Silicones.

A restriction on the free movement of capital may be neutralized by a bilateral tax treaty even where the fund is fiscally transparent and passes dividends and the tax credit through to its unit-holders but only if those unit-holders can actually deduct the full tax differential themselves.