Spain
Carlos Frühbeck
by Carlos Frühbeck
a) Transfer pricing rules
Transactions between related persons must be assessed at their market value. The following are considered to be related persons or entities:
An entity and its members or participants;
An entity and its directors or managers, except for when they receive remuneration for the exercise of their functions;
An entity and the spouses or persons related by blood to the entity’s members or participants, directors, or administrators;
Two entities belonging to a group;
An entity and the directors or managers of another entity, where both entities belong to a group;
An entity and another entity in which the former holds indirectly at least 25% of the share capital or equity;
Two entities in which the same partners, participants or their spouses, or persons related by blood or marriage hold at least 25% of the equity.
An entity resident in Spanish territory and its permanent establishments abroad.
b) Transfer pricing valuation methods
Any of the following methods are applicable in Spain:
Comparable free price method, which compares the price of the good or service in a transaction between related persons or entities with the price of an identical or similar good or service in a transaction between independent persons or entities in comparable circumstances.
Cost plus method, whereby the usual margin in identical or similar transactions with independent persons or entities is added to the acquisition value or production cost of the good or service.
Resale price method, which subtracts from the sale price of a good or service the margin applied by the reseller in identical or similar transactions with independent persons or entities.
Profit or loss allocation method, whereby each related person or entity that jointly enters into a transaction is allocated a share of the common profit or loss arising from that transaction on a basis that reflects the terms and conditions that would have been subscribed to by independent persons or entities in similar circumstances.
Net operating margin method, whereby the net result, calculated based on costs, sales, or the most appropriate amount based on the characteristics of identical or similar transactions carried out between independent parties, is attributed to transactions carried out with a related person or entity.
Where it is not possible to apply the above methods, other generally accepted valuation methods and techniques that respect the arm's length principle may be used.
c) OECD guidance
Spanish law regulates that the interpretation of the legislation governing related-party transactions must be made in accordance with the OECD Transfer Pricing Guidelines and the recommendations of the EU Joint Transfer Pricing Forum, to the extent that they do not contradict what is expressly stated in the Law.
d) Reporting requirements
Taxpayers who carry out the following transactions with related persons or entities are obliged to prepare transfer pricing documentation:
Transactions with the same person or related entity, provided that the amount of all the transactions in the tax period exceeds EUR 250,000.
Transactions that use the same valuation method, provided that the aggregate amount of such transactions exceeds 50% of the entity's turnover.
The following transactions, provided that the combined amount of each such transaction in the tax period exceeds EUR 100,000:
Transfers of business.
Transactions involving of shares representing the equity of entities not traded on any regulated markets.
Transactions in real estate and intangible assets.
Transactions with so-called non-cooperative jurisdictions, irrespective of the amount involved.
Taxpayers required to prepare transfer pricing documentation must prepare the following documentation.
Master file
Minimum content of the master file:
Description of the organisational, legal, and operational structure of the group.
Identification of the entities forming part of the group.
Principal activities of the group, main geographical markets, main sources of profits, and supply chain.
General description of the functions performed, risks assumed, and assets used.
Description of the group's transfer pricing policy.
Description of cost-sharing arrangements and service contracts between group entities.
Description of relevant acquisitions or disposals of assets during the tax period.
Overview of the group's overall strategy concerning intangible assets.
List of the group's intangible assets relevant for transfer pricing purposes.
Agreements between group entities relating to intangibles.
General description of the group's financing arrangements.
Identification of the group entities performing the main group financing functions.
Consolidated annual financial statements of the group.
Previous valuation agreements in force.
Local file
Minimum content of the local file:
Management structure of the taxpayer.
Description of the taxpayer's activities and business strategy.
Main competitors.
Description of the nature, characteristics, and value of the related party transactions.
Name, tax domicile and TIN of the related persons or entities involved.
Comparability analysis.
Explanation of the selection of the chosen valuation method.
Prior valuation agreements in force with any tax authority.
Financial data of the comparables used and the source from which they were obtained.
Penalties
Failure to provide, or the incomplete or false provision of, TP documentation is considered a serious tax offence. This infringement is sanctioned as follows:
1. If the tax authorities do not to make corrections to the tax base:
Fixed penalty of EUR 1,000 for each piece of information, and EUR 10,000 for each set of omitted or false information.
The penalty shall be capped at the lower of the following two amounts:
10% of the aggregate amount of the related transactions carried out in the tax period
1% of net turnover.
2. If the tax authorities make corrections to the tax base:
Penalty of 15% of the amount of the corrections made for each operation.
The following circumstances shall be considered in the economic analysis:
Specific characteristics of the goods or services delivered;
Functions assumed by the parties, identifying the risks assumed and weighting the assets used;
Contractual terms of the transactions;
Economic circumstances that may affect the related transactions; and
Business strategies.
Internal or external comparables to be considered should be indicated.
Two or more transactions are comparable where there are no material differences in circumstances affecting the price of the good or service or the margin of the transaction, or where such differences can be eliminated by making the necessary comparability adjustments.
It is possible for taxpayers to reach agreements with the tax administration on the valuation of transactions with other related taxpayers prior to their execution. Through these agreements, the market value of the transaction is determined in advance at the taxpayer's request based on the proposal submitted by the taxpayer and using any of the valuation methods admitted by law.
Given that the related parties may be located both in Spanish territory and abroad, it is normal to involve the respective tax administrations in which the parties reside to ensure that joint taxation does not exceed the income obtained.
Ficesa Treuhand, S.A.P. is an accounting, auditing, and fiscal advisory company founded in 1978. The company currently has five offices in Spain, located in Madrid, Barcelona, Marbella, Palma de Mallorca, and Gran Canaria. The firm specialises in providing services to Spanish subsidiaries of multinational groups. The staff speak German, English, and French, in addition to Spanish.
GGI member firmFicesa Treuhand, S.A.P.Madrid, Barcelona, Marbella, Palma de Mallorca, Las Palmas de Cran Canaria, SpainT: +34 91 700 43 50
Advisory, Auditing & Accounting, Fiduciary & Estate Planning, Tax
Carlos Frühbeck Olmedo is member of the Spanish Official Register of Chartered Accountants. He speaks English and German fluently and is currently managing partner of Ficesa Treuhand, S.A.P.
