Transfer pricing in Spain at a glance
|Are there specific transfer pricing regulations?||Yes|
|Submission deadline upon request||10 days|
|Annual update required||Yes (CbC Report)|
|Official language requirements||Spanish (English generally accepted)|
|Potential impact of penalties||N/A|
Spanish tax law
Rules for transfer pricing in Spain are based upon:
- Article 16 of the Corporate Income Tax Act, Royal Legislative Degrees 4/2004);
- Non-residents Tax Act (Royal Legislative Decree 5/2004);
- Royal Decree 1793/2008;
- Royal Decree 1794/2008;
- Royal Decree 6/2010;
- Royal Decree 897/2010, and
- Royal Decree of March 18, 2015.
Spanish transfer pricing legislation generally is in line with the OECD Transfer Pricing Guidelines and is since furthermore in line with the OECD BEPS Action Plan.
Accepted methods are:
- the comparable uncontrolled price (CUP) method
- the resale price method
- the cost plus method
- the profit split method
- the transactional net margin method (TNMM)
- (only sometimes) the discounted cash flow (DCF) method
In Spain, the CUP method, the cost plus method, and the resale price methods are prioritized over the other methods. When it proves difficult to apply these methods due to complexity or lack of available information, the profit split method, the TNMM, and the DCF methods can be applied.
Information that should be provided for in the master file:
- General descriptions of the organizational, legal and operative group structure, and any change thereof
- Identification of the group entities that enter into related party transactions, to the extent that they affect the operations of the Spanish corporate taxpayer, directly or indirectly
- General description of the nature, amounts and flows of related party transactions completed by corporate group entities, to the extent that they affect the operations of the Spanish corporate taxpayer, directly or indirectly
- General description of the functions performed and the risks assumed by the different group entities, to the extent that they affect the operations of the Spanish corporate taxpayer, directly or indirectly, including any changes since the last fiscal year
- List of intangibles (including patents, trademarks, commercial brands) owned by the group, to the extent that they affect the operations of the Spanish corporate taxpayer, directly or indirectly, as well as the considerations derived from the use of these intangibles
- Description of the group’s transfer pricing policies, including the pricing methodology used to justify the group policy’s compliance with the arm’s length principle
- List of cost sharing and services agreements between group entities relevant to the Spanish corporate taxpayer
- List of Advance Pricing Agreements (APA) and agreements entered into, as relevant to the Spanish corporate taxpayer
- Corporate group’s Annual Report or equivalent
Information that should be provided for in the local file:
- A detailed description of the taxpayer’s business and business strategy, including changes in the business strategy compared to the previous tax year
- A description and explanation of the specific controlled transactions, including the transactions (tangible and intangible assets, services, financial, etc.), invoices and amounts of the transactions
Information that should be provided for in the Country-by-Country Report (CbC Report):
As of fiscal years starting on and after January 1, 2016, group companies with a Spanish resident parent company are obliged to, next to the Master- and local file, submit a CbC Report on an annual basis. This report should be filled by the Spanish parent company and is only required if the turnover at group level is EUR 750 million or greater. With regard to the content of the CbC Report the Spanish authorities have followed the OECD. This information can be found on our Country-by-Country page.
Rules for transfer pricing in Spain prescribe that documentation should be provided for in Spanis. In practice, however, English documentation is usually accepted, although a translation may be requested during a tax audit. From a strategic perspective, it is preferable to prepare documentation in Spanish. If the documentation is needed as evidence (especially in court), it should always be translated into Spanish.
Rules for transfer pricing in Spain prescribe that documentation should be available for the tax authorities at the conclusion of the voluntary period for filing the annual corporate income tax return (for the fiscal year ending 31 Dec. 2012, the due date is 25 July 2013).
Deadline to submit upon request
Documentation will have to be kept by companies once the corporate income tax return is filed.
Advance Pricing Agreements
In Spain it is possible to obtain unilateral, bilateral, and multilateral APAs.
The term of an APA may be up to four fiscal years following the year of approval, the negotiation year itself, and one-year rollback in some cases. The maximum term is six years.
The Supreme Court is analyzing the validity of the penalty regime application, based on the formal proceeding in which regulations have been established. As a practical consequence, there are only a limited number of cases in which penalties are applied.
In addition to the above, the new regulations also include the applicability of “secondary adjustments” (i.e., in those transactions where both values will have for the related parties the tax treatment that corresponds to the nature of the profit realized). The law makes a clarification for cases where the link is defined in light of the relationship between the shareholder and the entity, the difference shall (in proportion to the entity’s degree of participation) be considered as:
- dividends, whenever such difference is in favor of the shareholder, or
- contributions by the shareholder to the entity’s equity, whenever the difference is in favor of the entity.
The above sanctions are compatible with aggravating circumstances such as resisting, obstructing, excusing or negating the tax authorities’ actions.