The painting, "Head of a Young Woman", was seized by customs officials a week ago from a yacht off the French island of Corsica. The 1906 work is considered a national treasure in Pablo Picasso's native Spain and was subject to an export ban.
Its owner Jaime Botin, a well-known Spanish banker whose family founded the Santander banking group, is accused of trying to illegally export it to Switzerland.
But his lawyers said today that the picture had been painted abroad and acquired in London in 1977 and was therefore British, not Spanish -- and that Spanish authorities have no right to ban its export.
"The work was painted and purchased abroad and has always remained there. As a consequence, it cannot be exported (from Spain), either legally or illegally," the lawyers said in a statement sent to AFP.
"For years the painting has been kept permanently on a British-flagged boat -- which effectively constitutes foreign territory, even when docked in Spanish ports," they argued.
But Javier Garcia Fernandez, a constitutional law specialist at Madrid's Complutense University, said there was a "huge contradiction" between this claim and the fact that Botin had tried to apply for an export licence for the painting, which is valued at more than 25 million euros ($27 million dollars).
Botin had been trying since 2012 to obtain authorisation to export the painting, but the culture ministry refused to grant permission, a decision backed up by one of Spain's highest courts in May.
When customs officials boarded the yacht last week, its captain could only present two documents concerning the painting -- one of which was the court judgement ordering that it be kept in Spain.
"If they say the painting was bought abroad and has always stayed there, why did they ask for an export permit? It's a huge contradiction," Spanish news website ElConfidencial quoted Fernandez as saying.
"From the moment you apply for authorisation to export a good, that is then denied and has been taken before a Spanish court, there is recognition that it belongs to Spain."
The painting was completed during Picasso's so-called Gosol period and Spanish officials argue that it is "the only work of its kind" in the master's home country.
Get Breaking news, live coverage, and Latest News from India and around the world on NDTV.com. Catch all the Live TV action on NDTV 24x7 and NDTV India. Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.