The Transfer Pricing Law Review: Spain


On 30 November 2006, Act 36/2006 of 29 November on Tax Fraud Prevention Measures was published in the Spanish Official Gazette, which provided for the obligation to value on an arm's-length basis transactions carried out between related entities or persons.

As is stated in the preamble to the Act, this reform is in line with the recommendations of the EU Joint Transfer Pricing Forum and the principles laid down by the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines (the OECD Guidelines), in light of which this legislation should be interpreted. When this Act was published, the 1995 version of the OECD Guidelines was in force; however, tax authorities and courts can refer to current versions of the OECD Guidelines to help determine whether transactions predating those Guidelines were arm's length.

In addition, on 28 November 2014, Act 27/2014 of 27 November on Corporate Income Tax (the CIT Act) was published in the Spanish Official Gazette, repealing Royal Legislative Decree 4/2004 of 5 March, which enacted the former Corporation Tax Act, as amended.

The transfer pricing rules included in the CIT Act covers both companies and individuals. It must be noted that Spanish legislation does not recognise the existence of trusts in Spain. In this regard, transfer pricing rules apply to CIT, personal income tax and non-resident tax.

Additionally, and in line with Spanish accounting principles, the CIT Act clearly specifies that controlled transactions carried out by related parties must be valued on an arm's-length basis. In this sense, the burden of proof falls upon the taxpayer, which must provide documentary proof to the tax authority showing that the values applied in transactions with related parties meet the principle of valuation at fair market value or on an arm's-length basis.

The CIT Act establishes the obligation to make available to the tax authority the documentation that is determined by law. The documentation requirements are categorised based on the concepts of 'country-by-country information', 'specific group documentation' and 'specific taxpayer documentation' (see Section II).

One significant point on which the Spanish transfer pricing regulations differ from the OECD Guidelines, giving them more relevance, is their broader parameters for related or associated parties, which require the preparation of documentation and application of transfer pricing principles to operations that would not be regarded as related operations in other countries.

The CIT Act establishes that 'associated/related persons or enterprises' shall mean:

  1. an enterprise and its shareholders or participants;
  2. an enterprise and its directors or administrators (although the remuneration received by directors or administrators solely for the exercise of their functions is excluded from consideration as a related transaction);
  3. an enterprise and the spouses or persons united by kinship relations, in direct or collateral line, by consanguinity or affinity up to the third degree of the shareholders or participants, directors or administrators;
  4. two enterprises that belong to a group;
  5. an enterprise and the directors or administrators of another enterprise, when both enterprises belong to a group;
  6. an enterprise and another enterprise in which the former has an indirect shareholding of at least 25 per cent of the share capital or equity;
  7. two enterprises in which the same shareholders, participants or their spouses, or persons united by kinship relations, in direct or collateral line, by consanguinity or affinity up to the third degree, participate, directly or indirectly, in at least 25 per cent of the share capital or own funds; and
  8. an enterprise resident in Spanish territory and its permanent establishments abroad.

In those cases in which the association is defined based on the relationship between the shareholders or participants and the enterprise, the participation must be equal to or greater than 25 per cent. The reference to administrators will include both de jure and de facto administrators.

The CIT Act establishes that there is a group when an enterprise holds or can hold control of another or others according to the criteria established in Article 42 of the Commercial Code (e.g., 51 per cent of voting rights), regardless of its place of residence and the obligation to file consolidated annual accounts.

However, it must be noted that the CIT Act stipulates certain exceptions from the application of the transfer pricing rules, such as:

  1. the remuneration paid by an entity to its directors in the performance of their functions;
  2. shareholder transactions such as dividends and capital contributions, as the CIT Act stipulates a specific valuation rule for those transactions; and
  3. the following entities, which are excluded from the list of related parties:
    • an entity and the shareholders or participants of another entity when both entities form part of a tax unity or tax group;
    • a non-resident entity and its permanent establishment in Spain (however, the transactions between a permanent establishment and its head office or between permanent establishments are considered related operations under the non-resident income tax regime); and
    • companies taxed under the cooperatives tax regime.

Spanish legislation expressly recognises the application of secondary adjustments and where a transfer pricing adjustment is made to the arm's-length price, the CIT Act establishes a secondary adjustment regime whereby the difference that arises between a non-arm's-length transaction and its market value will receive the tax treatment that corresponds to the true nature of the income disclosed by the existence of the difference (usually either a dividend distribution or equity contribution).

The secondary adjustment will not apply if the related counterparty refunds the relevant amount of the difference between the fair market value and the challenged applied price.

Filing requirements

Section 18.3 of the CIT Act establishes the obligation to make available to the tax authority the documentation determined by law.

This documentation is not required for those transactions carried out between entities that are taxed on a consolidated basis for corporation tax or those transactions carried out between the members of economic interest groups or temporary consortiums, as well as those carried out within the context of takeover bids or public offerings.

Moreover, transfer pricing documentation is not required for those transactions carried out with the same associated enterprise if the amount of the consideration for the transactions as a whole does not exceed €250,000 based on the fair market value.

The documentation must be available to the tax authority from the end of the voluntary payment period, generally on 25 July of each year.

The transfer pricing documentation must be prepared in accordance with Spanish legislation, in compliance with the OECD Guidelines in their current wording, and with the recommendations of the EU Joint Transfer Pricing Forum.

The Corporation Tax Regulations, enacted in Royal Decree 634/2015 of 10 July, set out the required content for transfer pricing documentation. As noted above, the documentation is categorised based on the concepts of country-by-country information, specific group documentation, and specific taxpayer documentation, as follows.

Country-by-country information

The following documentation (defined as country-by-country information by Section 14 of the Corporation Tax Regulations) is required for entities with a combined net group turnover of at least €750 million in the 12 months preceding the start of the tax period.

Master file (specific group documentation)

The following documentation is required for the master file (defined as group documentation by Section 15 of the Corporation Tax Regulations):

  1. Information relating to the structure and organisation of the group:
    • a general description of the group's organisational, legal and operational structure, as well as any relevant change therein; and
    • identification of the various entities forming the group.
  2. Information relating to the group's activities:
    • the main activities of the group, as well as a description of the main geographic markets in which the group operates, main sources of profits and chain of supply of those goods and services that represent at least 10 per cent of the group's net turnover, for the tax period;
    • a description of the functions performed and the risks assumed and main assets used by the various entities of the group, including changes with respect to the previous tax period;
    • a description of the group's transfer pricing policy, including the method or methods adopted by the group to establish prices;
    • a list and brief description of the cost-sharing agreements and agreements for relevant services between entities of the group; and
    • a description of the restructuring transactions and transactions for the acquisition or assignment of relevant assets, carried out during the tax period.
  3. Information relating to the group's intangible assets:
    • a general description of the group's global strategy in relation to the development, ownership and operation of intangible assets, including the location and the address of the main premises where research and development activities are carried out;
    • a list of the group's relevant intangible assets for the purposes of transfer pricing, indicating the entities owning those assets, as well as a general description of the group's transfer pricing policy in relation to the assets;
    • the amount of the considerations for the group's controlled transactions, arising from the use of the intangible assets, identifying the entities of the group concerned and their territories of tax residency;
    • a list of agreements between entities of the group in relation to intangible assets, including cost-sharing agreements, the main research service agreements and licence agreements; and
    • a general description of any relevant transfer of intangible assets carried out in the tax period, including the entities, countries and amounts.
  4. Information relating to financial activity:
    • a general description of the group's means of financing, including the main financing agreements entered into with persons or entities unrelated to the group.
    • identification of the entities of the group that carry out the group's main financing functions, as well as their country of incorporation and the country of their place of effective management; and
    • a general description of the transfer pricing policy in relation to financing agreements between entities of the group.
  5. The group's financial and tax position:
    • the group's consolidated annual financial statements, when they are mandatory for the group or are prepared voluntarily; and
    • a list and brief description of the applicable prior valuation agreements and any other agreement with any tax authority that may affect the distribution of the group's profits between countries.

Local file (specific taxpayer documentation)

The documentation stipulated in this section will not apply to those groups whose net turnover is less than €45 million. In addition, this documentation must indicate the tax period in which the taxpayer has carried out the transactions with its associated enterprises. When the documentation prepared is applicable in future years, it will not be necessary for it to be prepared again, irrespective of any necessary adaptations.

In the case of entities regarded as small and medium-sized enterprises (those belonging to a group with a turnover below €10 million), these obligations are partially mitigated (except for transactions carried out with entities resident in a tax haven).

The following local documentation is required (defined as taxpayer documentation by Section 16 of the Corporation Tax Regulations):

  1. The taxpayer's information:
    • the management structure, structural chart and persons or entities receiving reports on the taxpayer's business activities, indicating the countries or territories in which those persons or entities are tax-resident;
    • a description of the taxpayer's business activities, business strategy and, where applicable, participation in restructuring transactions or transactions for the assignment or transfer of intangible assets in the tax period; and
    • the taxpayer's main competitors.
  2. Information regarding controlled transactions:
    • a detailed description of the nature, characteristics and amount of the controlled transactions;
    • the names and surnames or full company name, tax address and tax identification number of the taxpayer and the related persons or entities with whom the transaction is carried out;
    • a detailed comparability analysis,2 as stipulated in Section 17 of the Corporation Tax Regulations;
    • an explanation of the valuation method chosen, including a description of the reasons that justified choosing the method, as well as the way in which it has been applied, the comparables obtained and the specification of the value or value range arising from the method;
    • where applicable, the basis for cost sharing as services provided jointly to various related persons or entities, as well as the relevant agreements, if any, and the cost-sharing agreements referred to in Section 18 of the Corporation Tax Regulations;
    • a copy of the applicable prior valuation agreements and any other agreements with any tax authority related to the controlled transactions indicated above; and
    • any other relevant information that has been used by the taxpayer to determine the value of the controlled transactions.
  3. The taxpayer's economic and financial information:
    • the taxpayer's annual financial statements;
    • the reconciliation between the data used to apply the transfer pricing methods and the annual financial statements, where appropriate and relevant; and
    • the financial data of the comparables used and their source.

Presenting the case

i Pricing methods

The five transfer pricing methods accepted by the OECD have been adopted in Spanish legislation. As of fiscal year 2015, the CIT Act does not state a priority in the application of transfer pricing methods. The selection of a transfer pricing method shall take into account, among other circumstances, the nature of the controlled transaction, the availability of reliable information and the degree of comparability between controlled and uncontrolled transactions. In situations where it is not possible to apply these five methods, any other generally accepted method and valuation techniques that respect the arm's-length principle shall be applicable.

The following are the definitions of the five prescribed methods as listed in Article 18 of the CIT Act.

Comparable uncontrolled price method

In this method, the price of the product or service in a transaction between associated persons or enterprises is compared to the price of an identical product or service or one with similar characteristics in a transaction between independent persons or enterprises in comparable circumstances. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

Cost-plus method

In this method, the markup normal in identical or similar transactions with independent persons or enterprises is added to the purchase price or cost of production of the product or service, or, failing this, the markup applied by independent persons or enterprises to comparable transactions. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

Resale price method

In this method, the markup applied by the reseller itself in identical or similar transactions with independent persons or enterprises is subtracted from the sale price of a product or service, or, failing this, the markup applied by independent persons or enterprises to comparable transactions. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

Profit split method

In this method, each associated person or enterprise carrying out jointly one or more transactions is allotted part of the common profits resulting from the transaction or transactions, provided that this reflects what independent persons or enterprises would have done in the same circumstances.

Transactional net margin method

In this method, the net profits are allotted to the transactions carried out with an associated person or enterprise, calculated based on the most appropriate base (costs, sales or assets) depending on the characteristics of the transactions, which the taxpayer or third parties would have obtained in identical or similar transactions carried out between independent parties. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

ii Authority scrutiny and evidence gathering

The State Tax Administration Agency (AEAT, or the Tax Agency) publishes its General Guidelines for the Tax and Customs Control Plan every year. In recent years, the Tax Control Plan has included transfer pricing as one of the essential points for attention in the review of multinational groups, especially operations carried out with high-value intangibles, intra-group services, corporate restructurings and intra-group financing operations.

In Spain, tax authorities usually examine transfer prices during the normal course of CIT tax audits, rather than conducting special transfer pricing audits.

These CIT tax audits are mainly oriented towards understanding the role of the Spanish companies under scrutiny in the group's value chain, to check the consistency of the transfer pricing methods applied and the results of the benchmark analyses. These audits are also oriented to the detection and regularisation of permanent establishments of non-resident entities, which may arise in certain operating structures of multinational groups, such as contracts for the provision of marketing, agencies, commissionaires, and similar services. Therefore, the review of transfer pricing policies covers not only the quantification of operations, but also the structure of the operations, and their different tax effects.

With respect to related transactions between a natural person and a company, the actions of the Spanish tax authorities are currently aimed at avoiding the abusive use of companies to channel income from natural persons in a way that reduces the effective tax rate. In practice, these tax audits result in adjustments to the valuation of the related operations (made or presumed) between the individual and the company.

For confidentiality reasons, audit results are not published in Spain.

Intangible assets

Spain has traditionally been an intangible importer rather than exporter; Spanish taxpayers, therefore, are usually scrutinised about royalties paid and whether the relevant fee matches the benefit obtained from the intellectual property (IP) received.

Spanish legislation has declared directly applicable all OECD criteria regarding transfer pricing, so there is no need for any implementation exercise by the Spanish authorities.

It is worth noting that the Spanish transfer pricing regulations introduced the option for application of the discounted cash flow method when it is considered the method that most correctly applies the arm's-length principle. This option has mainly been used in relation to IP and goodwill.

That said, there are no specific regulations or legislation dealing with the valuation of intangibles.

As mentioned above, the transfer pricing documentation requires an in-depth description of intangibles belonging to multinationals.


The only settlements with the tax authorities covered by Spanish legislation are advance pricing agreements (APAs).

These agreements have advantages both for taxpayers (they have the legal certainty that the valuation of their operations will not be subject to modification by the Tax Agency in a subsequent verification of the settlements) and for the Tax Agency itself (avoiding the complexity of verifying the market value of these operations after they have been carried out).

APAs may be unilateral (when there is an agreement between the taxpayer and the Tax Agency) or bilateral (when an agreement is reached with other countries' administrations, linking both related companies resident in different states and their administrations).

To start this procedure, taxpayers who wish to conclude an APA with the Tax Agency should initiate it by a formal proposal, identifying the persons or entities that will carry out the transactions and describing the transactions and the basic elements of the valuation proposal that are the subject of the agreement. The application must be accompanied by the specific documentation for the group to which the taxpayer belongs, as well as the specific taxpayer documentation.

The APA must be set out in a document that includes the place and date of its formalisation, the identification of the taxpayers to whom the proposal refers, the taxpayers' conformity with the content of the agreement, the description of the operations to which the proposal refers, the essential elements of the valuation method, the tax periods to which the agreement will be applicable, and its date of entry into force and the critical assumptions whose existence determines the applicability of the agreement under the terms contained therein.

According to Section 25(4) of the Corporation Tax Regulations, the procedure subsequent to the formulated proposal must be completed within six months of the date on which the application is entered in any of the registers of the administrative body competent for the resolution of the matter.

Should the six-month period elapse without the Tax Agency having expressly settled the procedure, the proposal is understood to have been rejected.

These can be unilateral agreements, concluded solely with the Tax Agency, or bilateral agreements, between the Tax Agency and a foreign administration.

The APA shall take effect in respect of operations carried out after the date on which it is approved, and shall be valid for the tax periods specified in the agreement itself, but may not exceed four tax periods following the date on which it is approved. However, the APA can be also applied to operations from previous tax periods provided that the right of the Tax Agency to determine the tax debt by means of the appropriate liquidation has not expired.


In Spain, the general statute of limitations period is four years for tax purposes. This period has been extended to 10 years under the new CIT Act with respect to the right of the tax authorities to audit in cases of tax loss carry-forward. As of fiscal year 2015, the General Tax Act has also been amended to extend this 10-year statute of limitations period to the right to conduct an administrative review of tax.

The General Tax Act also establishes that the interruption of the statute of limitations period for the collection of a tax will imply the interruption of related tax obligations.

During a tax inspection, it is normal for the tax authorities and the taxpayer to hold meetings to discuss and, when possible, resolve important and useful points for the inspection. These agreements will be very important for the outcome of the tax audit when the authorities are preparing their final conclusions.

When the tax inspectors have obtained all relevant information and documentation necessary to proceed with the verification and, to the extent possible, have issued an assessment, a period is granted for the taxpayer to review all the documents incorporated in the tax inspection records, and to submit any relevant additional documents to strengthen the taxpayer's standing or raise any matters it deems appropriate.

Finally, there could be some negotiations between the inspector and the taxpayer in complex tax inspections, although there is no legal basis for it.

For example, in cases where theoretical elements are unclear (indeterminate concepts) and where both parties accept the technical arguments presented by the other party on different issues arising in the course of the inspection, the inspection may conclude with a record (or certificate) of agreement, or one of conformity, to avoid an appearance before the courts of justice to resolve controversial technical issues.

At the end of the submissions period, the tax inspector will issue a proposal for an evaluation.3 There are three different types of evaluation document: agreement, conformity and disagreement.

The tax audit procedure will be extended to 18 months, and to 27 months if the taxpayer has to audit its financial statements or it forms part of a tax consolidation group. This period was formerly 12 months, extendable to 24 months under certain circumstances.


i Procedure

The conflict resolution procedure in Spain is not very simple and it has many stages, in administrative (tax) courts and courts of justice. Tax courts tend to agree with the tax authorities in a higher percentage of cases; therefore, it is necessary to appeal to the courts of justice, sometimes delaying and extending the duration of the judicial process up to as much as 10 years from the time the taxpayer started the procedure before the tax courts.

As previously mentioned, at the end of the submissions period, the tax inspector will issue a proposal for an evaluation. Of the three different types of evaluation document, an agreement reflects a settlement proposal agreed between the tax auditors and the taxpayer; an evaluation indicating conformity means the taxpayer fully accepts the regularisation proposal; and when the taxpayer does not agree with the facts considered by the inspectors and, in general, disagrees with the valuation proposal, the evaluation will indicate disagreement.

If taxpayers do not agree with the tax authorities' proposed settlement, two different appeal options are available. The taxpayer can appeal directly to the tax courts (an economic-administrative claim) or to the tax authorities themselves (an appeal for reversal). Regardless of the choice, either of the two actions must be filed within one month of the date of notification of the assessment. There are two types of tax courts: regional tax courts (TEARs) and the Central Economic-Administrative Court (TEAC).

If these tax courts reject the economic-administrative appeal, the taxpayer may file a contentious-administrative appeal before a court of justice within two months of the notification of the tax tribunal's decision (or within six months if one year has elapsed since the filing of the economic-administrative appeal without an express decision being issued by the tax court within one year).

The Spanish courts competent in tax matters are the National High Court, which, in general terms, hears appeals against the decisions of the TEAC; and the regional courts of justice, which, in general terms, hear appeals against the decisions of TEARs.

Finally, an adverse ruling by the National High Court may be appealed before the Supreme Court by means of an appeal in cassation within 30 days of the notification of the adverse ruling to the taxpayer.

Until 2016, cassation made the Supreme Court a second or third instance. However, as from that year, the system, based on three forms of cassation (common or ordinary cassation; cassation for the unification of doctrine; and cassation in the interest of law), has been changed into a single appeal process. Under the new system, the principal question to be addressed is whether the case is of sufficient interest for the Supreme Court to pronounce upon, and if it does so, it creates case law that will serve as a basis for future similar cases.

ii Recent cases

The most recent case regarding transfer pricing is the National High Court judgment dated 6 March 2019. According to the Court, multi-year analysis may be valid for conducting a comparability study, but comparison must be to the taxpayer's results for each year under review. However, as regards the value to be used in the valuation adjustment of the result, the Court accepts the company's claim and concludes that in order to use the median, there must be 'comparability defects' in the subject's sample.

On 15 October 2018 the Spanish Supreme Court published a ruling regarding the different penalty regimes that can be applicable to related-party transactions. In particular, the Supreme Court established that where the taxpayer has no obligation to prepare transfer pricing documentation, the specific transfer pricing penalties will not apply, but the general penalties regime will come into force. It must be noted that the general penalties regime has higher penalties for the taxpayer than the specific transfer pricing penalties regime.

The General Directorate for Taxation has stated in several rulings4 the value that must be taken into account for the purposes of determining whether a loan must be included in the transfer pricing documentation.

According to the General Directorate for Taxation, the value to take into account must be the market value of the interest corresponding to the loans, without including the amount of the principal nor the amounts reimbursed during the financial year.

Therefore, only the market value of the total consideration of the related operation should be taken into account, namely the market value of the total interest corresponding to the specific loan.

The National High Court has ruled5 on intra-group services rendered between related parties on several occasions. The CIT Act requires that intra-group services must produce, or be likely to produce, an advantage or utility for the Spanish recipient. Spanish courts, therefore, have mainly focused on the taxpayer being able to demonstrate such an advantage or utility.

However, it is very rare for the Spanish Courts to have to issue a ruling on the valuation of such services as the taxpayers usually fail to demonstrate an advantage or utility.

The TEAC, in its rulings of 5 September and 3 October 2013, rejected the application of a 'secret comparable' to determine the market value of a transaction. The TEAC stated that the use of secret comparables renders the taxpayer powerless to sustain a legal defence against the valuation determined by the tax authorities.

Regarding the transfer of non-listed businesses or shares, in its ruling of 27 September 2013, the Spanish Supreme Court stated that the underlying book value of the company can be considered its market value.

Secondary adjustment and penalties

In Spain, tax authorities are entitled to impose secondary adjustments to reflect the consequences of a non-arm's-length transaction. The CIT Act establishes that the difference arising between a non-arm's-length transaction and its market value will receive the tax treatment corresponding to the true nature of the income disclosed by the existence of the difference.

i Secondary adjustments between related parties

In particular, when the difference between a non-arm's-length transaction and its market value arises between an entity and its partners or participants, the CIT Act establishes the following two possibilities.

Differences in favour of the partner

Where the difference is determined as being in favour of the partner, the difference must be considered as dividends for the partner and as a redistribution of own funds for the entity, in the proportion corresponding to the percentage of participation.

The part of the income that does not correspond to the percentage of participation is considered to be redistribution funds for the entity and to be a conditional utility for the partner. Therefore, the secondary adjustment gives rise to a non-deductible expense in the entity because the income is considered in its entirety as remuneration of own funds.

As far as the partner is concerned, although all the income must be included in its tax base, for the part of the income attributable to the percentage of participation, the double taxation exemption may be applied.

Differences in favour of the entity

If the difference is determined as being in favour of the entity, the difference must be considered a contribution to the entity's funds made by the partner. Consequently, for the partner, the difference will result in an increase in the acquisition value of its participation.

The part of the income that does not correspond to the partner's percentage of participation in the entity is considered to be income. This income will have to be included in the entity's taxable base and will be considered a non-deductible liability for the partner.

ii Secondary adjustments to transactions between other related parties

Although not specifically regulated in the CIT Act, secondary adjustments will also be applicable to transactions carried out between other related parties (e.g., an entity and its directors, an entity and parties related to the partners and sister entities).

The application of the secondary adjustment rule may be excluded when the funds corresponding to the primary adjustment are restored between the related parties involved in the transaction.

iii Penalties imposed for non-arm's-length transactions

Regarding the penalties that the tax authorities might impose on a taxpayer for non-arm's-length transactions, the CIT Act provides for the following two scenarios.

No value adjustments

Where the tax assessment does not find it necessary to make value adjustments in the transfer pricing used by the taxpayer, the penalty will consist of a fixed monetary fine of €1,000 for each item of data and €10,000 for a set of data, omitted or false, relating to each of the documentation obligations established by law for the group or for each person or entity in its capacity as taxpayer.

The maximum limit of this penalty will be the smaller of the following two amounts:

  1. 10 per cent of the aggregate amount of the transactions subject to this tax, personal income tax or non-resident income tax carried out in the tax period; or
  2. 1 per cent of net turnover.

Value adjustments

Where the assessment finds that the taxpayer has not applied the values stated in the documentation, value adjustments will be made in respect of the value given to the transaction by the taxpayer (on account of there being differences between the value stated by the taxpayer and the fair market value of the transaction), and the penalty will consist of a proportional fine of 15 per cent of the sum of the amounts resulting from the adjustments for each transaction.

Broader taxation issues

i Diverted profits tax, digital sales taxes and other supplementary measures

On 10 March 2021, the Official Gazette published the Royal Decree-Law 4/2021 of 9 March 2021, which transposes Council Directive (EU) 2016/1164 of 12 July 2016, amended by Council Directive (EU) 2017/952 of 28 May 2017 (ATAD II Directive), as regards 'hybrid mismatches', and amends the CIT Act and non-resident income tax Act.

The Royal Decree-Law 4/2021 includes a new article 15.bis in the CIT Act regarding 'hybrid mismatches'. This new Article establishes the situations in which expenses derived from related transactions are not tax deductible because of a different tax characterisation of the expenses or transaction. For these purposes, the reference to related persons and entities means:

  1. persons or entities related in accordance with the provisions of Article 18 of CIT Act;
  2. an entity that holds, directly or indirectly, a participation of at least 25 per cent in the voting rights of the taxpayer or is entitled to receive at least 25 per cent of the profits of the taxpayer, or in which the taxpayer holds those interests or rights;
  3. a person or entity with which the taxpayer acts jointly with another individual or entity in relation to its voting rights or ownership of the capital of the taxpayer, or the person or entity acting jointly with another in relation to its voting rights or ownership of the capital of the taxpayer; and
  4. an entity over whose management the taxpayer has significant influence or an entity that has significant influence over the management of the taxpayer. For this purpose, significant influence is considered to exist when an entity has the power to intervene in the financial and operating policy decisions of another entity, without having control or joint control over it.

This new legislation came into force on 11 March 2021 and applies for periods that commenced on or after 1 January 2020 that have not ended on that date.

ii Tax challenges arising from digitalisation

On 16 October 2020, Law 4/2020 on the Tax on Certain Digital Services, commonly known as the 'Google Tax', was published in the Spanish Official State Gazette.

The Tax is levied at a rate of 3 per cent on the provision of digital services in Spain by taxpayers above the following two thresholds:

  1. their net turnover in the previous calendar year exceeds €750 million; and
  2. the total amount of their income from the provision of digital services subject to tax in the previous calendar year exceeds €3 million.

The Tax shall be chargeable on those supplies of digital services that take place in the territory of application of the Tax (i.e. in Spanish territory). Digital services provided by a user located in Spain will be deemed to be provided in Spanish territory, regardless of the place where the underlying delivery of goods or provision of services takes place and regardless of the place from which the payment related to the service is made.

The Tax assessment period will coincide with the calendar quarter, with the place, form and deadline for self-assessment still unknown.

In general, the provisions of the General Taxation Law will apply to the penalty system for the Tax. In addition, the Law provides for a specific penalty for non-compliance with the obligation to establish systems, mechanisms or agreements that allow the location of the devices used by users.

iii Transfer pricing implications of covid-19

In connection with the transfer pricing implications of covid-19, no guidance has been issued in Spain regarding the special economic conditions arising from the pandemic situation. However, on 1 February 2021, Spanish Authorities published the general guidelines of the Tax and Customs Control Plan for the fiscal year 2021. In these guidelines, the Administration acknowledges that its actions will take into account the guidelines recently approved by the Inclusive Framework on BEPS, on the application of the OECD Transfer Pricing Guidelines to a specific set of issues arising from the covid-19 pandemic, as well as their consistency with the group's general pricing policy.

iv Double taxation

Adjustments resulting from the application of transfer pricing rules by tax authorities can lead to double taxation of income. This double taxation sometimes cannot be solved unilaterally by tax authorities. In these cases, the use of bilateral procedures involving both states are required.

Spanish law provides two different applicable procedures to resolve double-taxation conflicts:

  1. the Mutual Agreement Procedure (MAP), provided in the double-tax treaties (DTTs) signed by Spain with other states. In Spanish domestic law, the MAP has been implemented in the First Additional Provision of the Non-Resident Income Tax Act, and developed in the Regulations on Mutual Agreement Procedures (RPAs); and
  2. the EU Arbitration Convention.6


The RPAs only apply to the MAP provided for in Section 25(1) and (2) of DTTs signed by Spain (i.e., those initiated at the request of the interested party). The competent Spanish body is the General Directorate for Taxation of the Ministry of Finance; however, for specific transfer pricing cases the competent authority is the Tax Agency.

The RPAs envisage the possibility of terminating the procedure because of lack of cooperation by the taxpayer. The agreement reached by the tax administrations of both DTT signatory states may not be appealed by the interested party.

Typically, interest arises on late payments of taxes; however, no interest will be accrued in cases where the Tax Agency makes an adjustment based on the agreement reached in a MAP.

Spanish law incorporates the possibility of suspending the debt once the MAP has been initiated, without having to go to the Spanish courts; however, if court procedures have been initiated, the court should be the one to grant the suspension.

Once the tax administrations reach an agreement, it is applied by means of an exchange of letters, which must be expressly accepted by the interested party. If this does not happen, the authorities may terminate the procedure without eliminating double taxation.

There is no stated maximum duration for the procedure, but the average duration has decreased over the past few years thanks to the better functioning of the tax administrations and by the interested parties having a better knowledge of the instrument.

In February 2020, the Non-Resident Income Tax Act was amended to incorporate the Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union, including the following amendments:

  1. expansion of the scope of application of MAPs regarding disputes with other EU Member States that arise from DTTs for the elimination of double taxation of income and wealth;
  2. accrual of late payment interest during the MAP procedure;
  3. suspension of review procedures (mainly economic-administrative claims) when they are simultaneous with a MAP, exclusively with respect to the elements of the tax liability that are the subject of the MAP; and
  4. non-admission of the MAP or its termination when companies involved are firmly condemned to certain penalties and sanctions.

EU Arbitration Convention

At the European level, transfer pricing adjustment cases can also be resolved through the mechanism of the EU Arbitration Convention, which is a multilateral convention that follows a scheme similar to the one for the Mutual Agreement Procedure.

There is a first phase of dialogue between tax administrations over a period of two years. If no agreement is reached at this stage, the interested party may request to go to the arbitration stage.

Affected companies may apply for the Arbitration Convention procedure in their state of residence and, in addition, permanent establishments may apply to commence the procedure in the state in which they are located or in the state of their parent company.

Unlike the MAP, the EU Arbitration Convention, in accordance with its Code of Conduct, has developed very precise guidelines for the operation of the arbitration commission to ensure its proper functioning.

v Consequential impact for other taxes

In Spain, there is no specific legislation regarding the consequential impact of transfer pricing adjustments on other taxes. In this respect, as stated by the VAT Expert Group of the European Commission, transfer pricing adjustments should be considered 'outside the scope of VAT' where both parties have a full right to recover VAT. It is only when one of the traders does not have a full right of recovery that transfer pricing adjustments might require a VAT adjustment, if there is a sufficiently direct link between any payments resulting from an adjustment and specific supplies. Transfer pricing adjustments resulting from a tax audit should always be treated as being outside the scope of VAT unless the parties agree to change the consideration accordingly.

The VAT treatment of the transfer pricing adjustment varies if it is an adjustment of a previous taxable transaction and therefore constitutes additional consideration for the same taxable transaction or if there is no consideration as such, because there is no taxable transaction.

When the transfer pricing adjustment can be linked to the initial supply, the VAT treatment of the adjustment is the same as for the initial supply. If there is no direct link with the initial supply and no contractual obligation to make a transfer pricing adjustment payment, the assumption is that the adjusting payment aims to reach an agreed profit margin, which is not a taxable transaction or taxable consideration, and as such is outside the scope of VAT.

The transfer pricing adjustment would not constitute a consideration if the profit margin is not correctly applied where goods or services are invoiced on a cost-plus basis. Typically, the taxable basis of the person under audit is increased while there is no corresponding decrease in the taxable basis of the counterparty.

Outlook and conclusions

When the current transfer pricing legislation was approved in 2006, the capabilities and knowledge of the Spanish tax authorities and tax professionals were not sufficiently developed to be able to apply the law properly. Now, however, more than 10 years later, things have changed significantly and transfer pricing is now a significant matter for the attention of companies and other economic operators (such as funds, venture capital firms and start-ups).

Furthermore, tax authorities have become used to dealing with the matter of transfer pricing to the extent that it has gone from being a rarely considered area to one that is now omnipresent, featuring in every single tax audit.

Now it is not merely a question of documentation, which is obviously a starting point, but mainly it is a matter of having robust transfer pricing criteria that duly and realistically reflect the actual risks and functions assumed by the parties.

Tax authorities' weakness is usually lack of consistency when reviewing companies from the same sector and with the same profile in terms of risk and functions, since their reviews are aimed at tax collection rather than technical correctness, which provides taxpayers with an extremely useful resource when litigating.

Tax disputes over transfer prices are becoming increasingly frequent, involving international competent authority procedures and arbitration procedures, something for which Spanish taxpayers should be prepared.


1 Raúl Salas Lúcia is a partner and Elena Ferrer-Sama Server and Pilar Vacas Barreda are tax directors at Roca Junyent.

2 The new Section 17 of the Corporation Tax Regulations includes the circumstances to be taken into consideration to determine whether two or more transactions are comparable for these purposes, such as the characteristics of the goods and services involved, the functions and risks assumed by the parties, the contractual terms agreed, and the economic circumstances or the business strategies.

3 Known as an acta.

4 Tax rulings of the General Directorate for Taxation Nos. V0767-11, V1263-11, V1341-12 and V1238-13.

5 Rulings of 1 December 2011, 19 January 2012 and 10 October 2012.

6 Convention 907436/EEC of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.

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