Spain - Transfer Pricing

Spain - Transfer Pricing - (Last Reviewed: 7 March 2022)
Transfer Pricing
Spain
Authors
Alejandro Escoda
Partner, Cuatrecasas, Barcelona
Pedro Amat
Jorge Guerrero
Brígida Galbete
Counsel, Cuatrecasas, Barcelona
IBFD Tax Technical Editor

Zachary Somers
Latest Information
This chapter is based on information available up to 7 March 2022. Please find below the main changes made to
this chapter up to that date:
Annual Plan for Tax and Customs 2022.
Abbreviations, Terms and References
Abbreviations
Abbreviation English definition Spanish definition
AEAT Federal tax authorities Agencia Estatal de la Administración
Tributaria
AIE Domestic economic interest grouping Agrupación de Interés Económico
AN National Court Audiencia Nacional
APA Advance pricing agreement -
CCA Cost contribution arrangement -
CCo Commercial Code Código de Comercio
CUP Comparable uncontrolled price Precio libre comparable
EU JTPF EU Joint Transfer Pricing Forum -
LGT General Tax Law Ley General Tributaria
IP Intellectual property Propiedad intelectual
LIS Corporate Income Tax Law Ley del Impuesto sobre Sociedades
MAP Mutual agreement procedure Procedimiento de mutuo acuerdo
A. Escoda et al., Spain - Transfer Pricing, Country Tax Guides IBFD (accessed 20 October 2022). 1
© Copyright 2022 IBFD: No part of this information may be reproduced or distributed without permission of IBFD.
Disclaimer: IBFD will not be liable for any damages arising from the use of this information.
Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

MNE Multinational enterprise -
NRITL Non-Resident Income Tax Law, Ley del Impuesto sobre la Renta de No
consolidated text approved by Residentes
Legislative Decree 5/2004 of 5 March
2004
OECD Transfer Pricing Guidelines OECD Transfer Pricing Guidelinesfor Directrices de la OCDE aplicables en
Multinational Enterprises and Tax materia de Precios de Transferencia
Administrations 2022 a Empresas Multinacionales y
Administraciones Tributarias 2022
OECD Model OECD ModelTax Convention on Income Modelo de Convenio Tributario sobre la
and on Capital Renta y sobre el Patrimonio
R&D Research and development Investigación y desarrollo
RDGT Ruling of the Directorate-General of Resolución de la Dirección General de

Taxes Tributos
RIRNR Regulations on Income Tax on Non- Reglamento del Impuesto sobre la
Residents Renta de No Residentes
RIS Regulations on Corporate Income Tax Reglamento del Impuesto sobre
Sociedades
SME Small and medium-sized enterprises -
TEAC Central Economic Administrative Court Tribunal Económico Administrativo

Central
TNMM Transactional net margin method Método del margen neto transaccional
TS Supreme Court Tribunal Supremo
VAT Act Act 37/1992 of 28 December 1992 on Ley 37/1992, de 28 de diciembre, del
Value Added Tax Impuesto sobre el Valor Añadido
References
Laws and decrees
Spanish transfer pricing rules are embodied in the corporate tax legislation:
- Law 27/2014, of 27 November 2014, of the Corporate Tax

- Royal Decree 634/2015, of 10 July 2015, for the approval of the Regulations of the Corporate Income Tax
The OECD Model and the OECD Transfer Pricing Guidelines are accepted by the Spanish Courts as guidance on the transfer
pricing issues arising from the application of the tax treaties signed by Spain.
Case law
Court rulings issued by the National Court (Audiencia Nacional, AN) and by the Supreme Court (Tribunal Supremo, TS)
concerning the application of Spanish transfer pricing rules include the following:
- Supreme Court, 10 January 2007

- National Court, 22 March 2007
- National Court, 27 September 2007
- National Court, 3 October 2007


- Supreme Court, 6 February 2008
- National Court, 30 April 2009
- National Court, 21 May 2009
- National Court, 21 September 2009
- Supreme Court, 30 November 2009
- National Court, 10 December 2009
- Supreme Court, 11 December 2009
- Roche case, Supreme Court, 12 January 2012 (Appeal number 1626/2008)
- Supreme Court, 21 June 2012
- Supreme Court, 18 July 2013
- Supreme Court, 27 May 2014
- Supreme Court, 18 June 2014
- Supreme Court, 29 October 2014
- Supreme Court, 23 March 2015
- National Court, 1 April 2015
- National Court, 11 June 2015
- ING case, National Court, 10 July 2015
- Schweppes case, National Court, 16 July 2015
- Peugeot case, National Court, 31 May 2016
- Dell case, Supreme Court, 20 June 2016
- Zerain case, National Court, 19 October 2016
- Citresa case, National Court, 21 February 2017
- McDonald’s case, National Court, 2 March 2017
- Colgate Palmolive case, National Court, 22 February 2018
- Microsoft case, National Court, 26 February 2018
- Lidl Supermercados case, National Court, 28 June 2018
- Supreme Court, 15 October 2018

- Supreme Court, 13 November 2019

Bibliography
C. Fernández et al., Régimen Fiscal de las operaciones vinculadas: valoración y documentación (2011)
M. Sanjuán, J. Antonio et al., Prácticas de valoración y documentación de operaciones vinculadas, Lexnova (2010)
C.E. Teodoro et al, Fiscalidad de los Precios de Transferencia (operaciones vinculadas), Centro de Estudios Financieros
(2010)
M. Reguera Blanco et al., El ajuste secundario en el Derecho Positivo Español: especial referencia a la nueva LIS, La Ley
Digital (2015)
C. Márquez Sillero et al., El nuevo régimen tributario de las operaciones vinculadas, La Ley Digital (2015)
N. Carmona Fernández et al., Operaciones vinculadas: Nuevas exigencias de información y documentación, La Ley Digital
(2015)
C. Suárez Mosquera et al., Los métodos de valoración de operaciones vinculadas y empresas multinacionales, Crónica
Tributaria (2015)
T. Cordón Ezquerro et al., Obligaciones de documentación y régimen sancionador en las operaciones vinculadas, Crónica
Tributaria (2015)
G. Sala Galvañ et al., Puntos críticos actuales de los precios de transferencia internacionales, La Ley Digital (2015)
1. Corporate Tax System in Brief

See Spain – Corporate Taxation – Country Surveys section 1.
2. Allocation of Income
2.1. Systems applied
Spanish transfer pricing rules are embodied in the Corporate Income Tax Law (LIS) and the Corporate Income Tax Regulations
(RIS). The LIS was approved by Law 27/2014, of 27 November, effective as of 1 January 2015, whereas the RIS was approved
by Royal Decree 634/2015, of 10 July 2015.
There are no systems other than the arm’s length principle applicable in Spain.
2.2. Legal basis of arm’s length principle

The main provision governing transfer pricing in Spain is article 18 of the LIS. The transfer pricing regime is completed by the
RIS. These sets of rules cover the following transfer pricing issues:
- comparability analysis;
- requirements for the tax deductibility of expenses relating to cost-sharing agreements;
- documentation requirements concerning transactions with related parties and with tax haven entities;
- tax consequences of the secondary adjustment;
- procedure of review of the valuation of transactions with related parties by the tax authorities; and
- regulations with respect to the advance pricing agreement (APA) procedure.
2.3. Regulations and circulars

There are no regulations or circulars specifically concerning transfer pricing.
2.4. Scope of legislation

Transfer pricing rules apply to the subjects that are considered corporate taxpayers under the Spanish tax legislation.

Under article 7 of the LIS taxpayers are defined as:
- legal entities, except partnerships regulated under civil code that do not have a mercantile purpose;
- agricultural transformation companies, governed by Royal Decree 1776/1981 of 3 August that approves the Statute of
Agricultural Transformation Companies;
- investment funds or collective investment institutions, governed by Law 35/2003 of 4 November of Collective Investment
Funds;
- temporary consortia, governed by Law 18/1982 of 26 May on the Tax Regime for Temporary Consortia and Economic
Interest Groupings and for Regional Industrial Development Companies;
- capital-risk funds and close-end collective investment funds, governed by Law 22/2014 of 12 November on Capital-Risk
Entities and other Close-End Investment Funds Entities and other modifications relative to Law 35/2003 of 4 November on
Collective Investment Institutions;
- venture capital funds, governed by Law 25/2005 of 24 November on Venture Capital Entities and Management Entities;
- pension funds, governed by Royal Legislative Decree 1/2002 of 29 November on Pension Schemes and Funds;
- mortgage market buffer funds, governed by Law 2/1981 of 25 March on Regulation of the Mortgage Market;
- mortgage securitization funds governed by Law 19/1992 of 7 July on the Regime for Real Estate Companies and Funds
and on Mortgage Securitization Funds;
- the asset securitization funds to which additional provision 52 of Law 3/1994 of 14 April on the Adaptation of Spanish
Legislation on Credit Issues to the Second Directive on Banking Coordination and other modifications relative to the
financial system refers;
- funds of guarantee investments governed by Law 24/1088 of 28 July, on the Capital Markets;
- co-ownerships of hills governed by Law 55/1980, of 11 July, on the Regime of Co-ownerships of Hills or the applicable
regional legislation;
- funds of bank assets governed by Tenth Additional Provision of the Law 9/2012, of 14 November, on the Restructuring and
Resolution of Financial Entities.
In addition, the transfer pricing rules apply to natural persons subject to the Personal Income Tax and any non-resident entity
subject to Non Resident Income Tax.
The Spanish transfer pricing rules cover any kind of transactions between related parties, as described in article 18(2) of the
LIS, regardless of whether they are purely domestic or cross-border. In addition, and according to the current RIS, transactions
with persons or entities resident in a tax haven jurisdiction for Spanish purposes must be valued at arm’s length and are subject
to the documentation requirements set forth in article 18(3) of the LIS and article 37 of the RIS.
2.5. Concepts of associated enterprises and control

The tax regime for associated enterprises is found in article 18 of the LIS and articles 13 to 36 of the RIS. Article 18(2) of the
LIS provides a list of persons and entities that are deemed to be related:
- an entity and its shareholders when the participation is at least 25%;

- an entity and its directors or administrators, except for the remuneration for their functions;
- an entity and the spouses and direct or collateral relatives up to the third degree of its shareholders, directors or
administrators;
- two entities which, under article 42 of the Commercial Code (Código de Comercio, CC), satisfy the conditions to form part of
a single group of companies, irrespective of their residency and their obligations to prepare consolidated accounts;
- an entity and the directors or administrators of another entity, when both entities belong to the same group of companies as
defined in article 42 of the CC, irrespective of their residency and their obligations to prepare consolidated accounts;
- two entities, when one indirectly owns 25% or more of the share capital or equity in the other;

- two entities in which the same shareholders or their spouses or direct or collateral relatives up to the third degree hold,
directly or indirectly, 25% or more of the share capital or equity of both of them; and
- a resident entity and its foreign permanent establishments (PEs).
As mentioned above, if the relationship is defined based on the shareholding connection, the interest held must be at least
25%.
The concept of associated enterprises is related and aligned with the OECD Model. However, the Spanish rules cover not only
transactions within a MNE, but also transactions between companies and individuals (e.g. shareholders, directors and their
spouses or relatives up to the third degree).
However, as mentioned, the LIS excludes from the scope of the transfer pricing rules the income and other remunerations paid
by an entity to its administrators and directors.
According to article 42 of the CC, a group exists when a company holds, or may hold, directly or indirectly, the control over one
or several others. Control shall be presumed to concur when a company, which shall be classified as controlling, is in relation
with another company, which shall be classified as dependent, in any of the following situations:
(1) it holds the majority of the voting rights;

(2) it has the power to appoint or dismiss the majority of the members of the governing body;
(3) it may dispose, by virtue of agreements entered into with third parties, of the majority of the voting rights; or
(4) it has used its votes to appoint the majority of the members of the governing body who hold office at the moment when
the consolidated accounts must be drawn up and during the 2 business years immediately preceding. In particular, that
circumstance shall be assumed when the majority of the members of the governing body of the controlled company are
members of the governing body or top management of the controlling company, or of another company controlled by it. In
that event, consolidation shall not arise if the company whose directors have been appointed is bound to another in any of
the cases foreseen in (1) and (2) above.
For the purposes of this article, the voting rights of the controlling company shall be added to those it holds through other
dependent companies, or through persons acting in its own name, but on account of the controlling company, or other
dependent ones, or those with which it has made arrangements through any other person.
2.6. Status and impact of OECD Guidelines and UN TP Manual

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 (“OECD Transfer Pricing
Guidelines”), jointly with the documents issued by the EU Joint Transfer Pricing Forum (EU JTPF), constitute the two basic
tools for interpreting Spanish transfer pricing rules.
In this sense, the Spanish regulations must be completed with an analysis of the applicable tax treaties, which in article 9 set
forth the arm’s length valuation requirements between associated enterprises. Spanish transfer pricing regulations follow the
OECD principles.
3. Comparability Analysis
3.1. Comparability factors
The application of the arm’s length principle as stated in the transfer pricing rules implies the obligation of taxpayers to value
their related-party transactions on an arm’s length basis. This obligation necessarily involves an analysis of the economic
and functional circumstances of an intra-group transaction with regard to independent transactions made in the open market,
considered as comparable in view of the relations between the related parties and the conditions of the transactions regarding
their nature and the parties’ conduct. The comparability analysis is a relevant part of the documentation to be generated in
accordance with article 17 of the RIS. It is based on the following criteria:
- specific features of the goods and services involved in the transactions analysed;
- functions and risks assumed, and assets used by the related parties within the related transactions;
- contractual terms setting liabilities, risks and profits assumed by each of the related parties;

- specific conditions of the markets where the goods and services are supplied or other economic factors which may be
relevant;
- business strategies; and
- any other relevant circumstances, such as the existence of losses, the incidence of decisions made by public authorities
and the existence of location savings and integrated groups of workers or synergies.
These criteria must be followed to the extent reasonably available to the taxpayer.
Then, potential comparables can be analysed. Obviously, any comparable can have certain differences with regard to the
controlled transactions. However, such differences must not be so significant as to affect the resulting transfer prices, or it must
be possible to mitigate the effects of any such differences through adjustments.
As mentioned, an analysis of the market or industry sector in which the taxpayer carries out its activities is an important
preliminary step. This can provide relevant information, such as the assets used, risks assumed and the supply chain position
of other companies operating in the same market.
However, the most important stage in the search for comparables is to precisely understand both the functions assumed and
the business carried out by the company. In connection with the functional analysis, it is essential to clarify certain factors,
including the position of the company in the supply chain, the level of assets used by the company and the risks assumed by
the company. These three factors are indicative of the level of remuneration to be received by the company.
Additionally, the RIS includes a provision according to which statistical measures can be used to minimize the risk of errors
when there is a lack of reliable data, but it is possible to obtain a range of values that reasonably complies with the arm’s length
principle (considering the process for the comparables’ selection and the limitations of the available information).
Article 18(6) of the LIS provides for a specific rule for transactions between an entity and its individual shareholder(s). This rule
is configured as a presumption whereby the services supplied by an individual shareholder to the company may be regarded as
being at arm’s length if:
- more than 75% of the income of the company stems from the supply of professional services;
- the company has sufficient human and material means; and
- remuneration paid to the shareholders represents at least 75% of the profits obtained before the deduction of the
remuneration paid to its professional shareholders, which triggers that the profits of the company are received by its
shareholders and, therefore, taxed under the Spanish personal income tax rules.
Remuneration of the professional shareholders must meet the following requirements:
- it must be agreed upon in writing and received under contribution criteria;

- it must not be lower than 1.5 times the average salary received by the employees of the company performing functions
similar to those performed by the professional shareholders or, in the absence of these, lower than five times the Public
Income Indicator of Multiple Effects.
3.2. Internal comparables

Spanish rules do not define the internal comparables. However, if there are transactions with similar comparability factors
carried out with third parties, it is advisable to use them as a benchmark as they would be accepted by the Spanish tax
authorities.
3.3. External comparables

External comparables are accepted under the LIS and the RIS and must be identified based on comparability factors and
valuation methods, in accordance with article 17 of the RIS.
In practice, external comparables obtained from public commercial databases (e.g. commercial registry data) may be useful,
but should be completed with external comparables in specialized databases.

3.4. Foreign comparables and secret comparables

Secret comparables are not used either by the taxpayer or by the tax authorities, since they would be a weak argument due to
the non-disclosure of the sources of information (TEAC decision of 3 October 2013).
However, the use of foreign comparables would generally be allowed. In practice, in those cases where the transactions
under discussion have effect in more than one country and are carried out in similar markets, the use of foreign comparables
is accepted by the Spanish tax authorities. Most of the transactions involving MNEs are best valued when using foreign
comparables. However, this should be analysed on a case-by-case basis. Moreover, any other factor (e.g. economic,
geographic, etc.) that may impact or may increase the comparability would be accepted.
3.5. Databases
The economic and functional analysis is commonly carried out on a multiple-year data basis by using well-regarded Spanish
and pan-European databases, such as AMADEUS, which provide the user with a high level of information. In this context, the
tax authorities accept the use of local and European data.
3.6. Comparability adjustments

Comparability adjustments may be made either by the taxpayers when establishing its transfer prices or by the tax authorities in
the course of a tax audit or of an APA.
These adjustments should be based on the differences that arose between the potentially comparable transactions. Those
adjustments can vary depending on the chosen valuation method.
In any event, these comparability adjustments should only be made when they increase the reliability of the results. There is no
adjustment excluded for Spanish purposes. Working capital adjustment could be made if it improves the results of the analysis.
Such adjustments are not regulated by the LIS and the RIS. Thus, the OECD Transfer Pricing Guidelines must be followed for
these purposes.
3.7. Arm’s length range and statistical tools

Article 17 of the RIS allows for the use of an arm’s length range and statistical measures in specific circumstances, but there is
no requirement to do so.
3.8. Timing issues in comparability

In general terms, the most reliable information is that related to comparable transactions undertaken in the same period. This
allows performing an analysis within the same economic environment.
The use of multiple-year data is allowed. The arm’s length price-setting approach is allowed by the Spanish tax authorities.
Under this approach, the use of previous years’ data would be taken into account along with the market expectations.
The arm’s length outcome setting approach can also be used. They will require the year-end adjustments if, in accordance with
new information from contemporaneous external comparables, the value used by the taxpayer is different to the arm’s length
value.
Data from years following the year of a transaction is not strictly forbidden, although it should be used along with retrospective
data.
4. Transfer Pricing Methods

4.1. Description of methods available
The consideration in transactions between related parties must be valued on an arm’s length basis under article 18 of the LIS.
This means that the consideration must be valued as if the transaction had taken place between independent parties in the
open market. If a comparable market exists, it is relatively easy to determine the fair market value. However, if a comparable
market does not exist, it is much more difficult to determine the arm’s length price.

Article 18(4) of the LIS expressly refers to the methods to be used to determine arm’s length values as provided in the OECD
Transfer Pricing Guidelines.
4.2. Hierarchy of methods

The former LIS in force until 31 December 2014 established a hierarchy of the methods to value the considerations of a
transaction at arm’s length. However, the current LIS removes the preference for the comparable uncontrolled price (CUP),
cost-plus and resale price methods over the profit split and the transactional net margin method (TNMM). This non-hierarchy is
in line with the OECD Transfer Pricing Guidelines.
4.3. Selection of a method

Article 18(4) of the LIS, following the OECD Transfer Pricing Guidelines and having removed the hierarchy of methods,
establishes that the selection of a method shall consider, among others, the following criteria:
- the nature of the transaction;

- the availability of reliable information; and
- the level of comparability between related and non-related party transactions.
If it is not possible to use any of the available methods when performing transfer pricing valuations, the LIS allows using any
other method or technique generally accepted that complies with the principle of open market.
Article 17(4) of the RIS does not provide for any specific rule regarding the functional analysis.
4.4. Comparable uncontrolled price method

The CUP method is the most direct means of determining the fair market value. It is defined in article 18(4.a) of the LIS as the
fair market value of the specific goods or services, or of those with similar characteristics, making necessary adjustments to the
latter to obtain equivalence, as well as to take into account the characteristics of the transaction. Apart from this, according to
the OECD Transfer Pricing Guidelines, there is a series of factors to be taken into account when establishing a CUP, namely:
- prices of goods in economically comparable markets, because there is no unique market in which transactions are carried
out under identical conditions;
- goods sold in the same stage of the manufacturing process should be compared, or at least differences in price should be
determined depending on the stage at which the merchandise is;
- goods must be almost materially identical, because the less similar they are, the more difficult it will be to find comparable
market prices; and
- the marketing and acceptance of the product by customers may affect the price thereof.
The tax authorities have adopted the above-mentioned factors in their identification of the steps to be taken to determine the
fair market value (TEAC decisions of 30 March 1989, 14 June 1989, 17 October 1989, 20 December 1989, 9 May 1995 and 25
October 1995), as follows:
- the same market in geographic terms must be considered;

- compared transactions must refer to identical goods, or similar ones;
- compared transactions must have an equivalent trading volume;
- compared transactions must be within the same stage of the manufacturing process; and
- compared transactions must have taken place in the same period of time.
The 2017 OECD Transfer Pricing Guidelines specify a series of requirements for the application of the CUP method, including
that the differences between the associated transactions and the arm’s length transactions do not materially affect the price.
This method would be applicable, for example, in the market of certain commodities, where intercompany transactions and
transactions in the market may be easily assimilated, after a few adjustments. Traditionally, this method has been preferred to

assess the market value. Its weakness is that it is difficult to apply in sectors where business integration is common, as seldom,
if ever, are there independent comparable transactions; and in sectors where trademarks are decisive to set the price.
Actions 8-10 of the BEPS Project amend Chapter II of the OECD Transfer Pricing Guidelines to include guidance especially
applicable to commodity transactions, which includes:
- Clarification of the existing guidance on the application of the CUP method to commodity transactions. The guidance states
that:
- the CUP method would generally be an appropriate transfer pricing method for commodity transactions between
associated enterprises;
- quoted prices can be used under the CUP method, subject to a number of considerations, as a reference to determine
the arm’s length price for the controlled commodity transaction; and
- reasonably accurate comparability adjustments should be made, when needed, to ensure that the economically relevant
characteristics of the controlled and uncontrolled transactions are sufficiently comparable.
- A provision on the determination of the pricing date for commodity transactions. This provision should prevent taxpayers
from using pricing dates in contracts that enable the adoption of the most advantageous quoted price. It allows tax
authorities to use, under certain conditions, the shipment date (or any other date for which evidence is available) as the
pricing date for the commodity transaction.
Example
A controlling company sells 1,000 kg of its product for EUR 80 per kilo to its subsidiary company. In turn, the controlling
company sells 5,000 kg of the same product to a third party for EUR 100 per kilo. In this case, one should (i) analyse whether
sales volume brings about a transfer pricing adjustment and (ii) consider the features of the market where this product is
usually supplied, especially whether the amount sold causes any discount on its price.
Other adjustments that may be required are the following:
- contractual terms of the transaction (quantities sold, payment conditions, Incoterms, insurances, warranties, etc.);
- market level (retail, wholesale, etc.);
- product quality;
- geographic market;
- intellectual property (IP) associated with the sale;
- foreign exchange risks; and
- competitors.
4.5. Resale price method

The resale price method is the counterpart to the cost-plus method, as it applies the reverse process. In this case, the tax
authorities determine the fair market value through a decrease of the resale price of the goods and services, as established
by the buyer, by a margin. The margin is what is normally obtained by such buyer in equivalent transactions with independent
parties, or by other companies in the same economic sector, taking into account the costs that the buyer would have incurred
for processing the goods or performing the services.
Therefore, this method consists of subtracting the usual profit margin from the sale price. Consequently, the starting point is the
price at which the product (acquired from an associated company) is resold to an independent party. Such resale price must be
decreased by a reasonable gross profit margin. The main problem posed by this method is the determination of an “adequate
profit”. Indeed, the application of this method involves significant difficulties, due to the complexity of determining the “cost
basis”, especially when the resale contributes to the maintenance and increase of the value of the product, such as trademarks
and various types of goodwill.

This method would be adequate for trading activities, specifically when the reseller does not create any added value in the
supply chain. OECD Transfer Pricing Guidelines provide for some examples where this method can be used, which would be
accepted by the Spanish tax authorities.
As this method is focused on the gross profit margin obtained by the company, its main weaknesses are that it is less sensitive
to the different features of the products supplied and to the costs derived by the different functions and risks assumed by each
part, especially when using external comparables.
Moreover, there are some factors that must be considered to adjust the related operation in order to make it comparable to a
non-related one:
- other contractual terms (i.e. sales volume discounts, warranty service inclusion, transport costs, etc.);
- exchange rate risks;
- accounting adjustments that may change the gross profit margin obtained;
- etc.
Consequently, it is important, considering the value added by the intermediate transactions, to assess the gross profit margin.
Example
A controlling company produces a good that is sold in Spain for EUR 120. There are only two companies that distribute this
product in Spain: a subsidiary company and a third party. The first one buys the product from its controlling company for EUR
90. The price does not include the royalty for using the trademark rights. As a result, the subsidiary company profit is EUR
30. In turn, the third party buys the product for EUR 100, which includes the royalty (EUR 10). Consequently, its profits drop
to EUR 20. In this case, the royalty cost is decisive to assess the net profit obtained by the distributor.
This method has been analysed in few cases (National Court, 6 February 2003 and 11 June 2015).
4.6. Cost-plus method

The cost-plus method consists of determining the fair market value through an increase of the cost value or the production
cost, by the profit margin normally obtained by the taxpayer in similar transactions carried out with unrelated parties, or by
other companies in the same economic sector. The OECD has established that this method is extremely helpful for determining
the fair market value of semi-finished goods or services. Usually, when this method applies, it will not be necessary to make
as many adjustments as under the CUP method, because the former is not so influenced by differences in the nature of the
product. This method would be applicable to supplies of services and in toll manufacturing or assembling arrangements.
This method has been analysed in certain cases, such as the National Court (Audiencia Nacional) sentence of 27 September
2007 and the TEAC decision of 25 July 2007.
The National Court (see judgment of 27 September 2007) established guidance about which costs are included in the basis:
only the expenses derived from the related-party activity, excluding those charged by external providers, as the National Court
considers that, in these cases, we are not facing a related-parties operation.
As in the resale price method, there are some factors that should be considered to adjust the cost-plus markup in order to
compare the related operation to a non-related one:
- other contractual terms (i.e. sales volume discounts, warranty service inclusion, transport costs, etc.);
- exchange rate risks;
- accounting adjustments that may change the gross profit margin obtained;
- the complexity of the manufacturing process, supplying of goods or services provision;
- managing expenses;
- etc.

The main flaws of this method are the difficulties to assess the cost value or production cost, especially regarding indirect
costs (there is no problem in determining direct costs, such as raw material expenses). This method does takes into account
managing expenses.
Another difficulty arises when the related parties follow different accounting criteria to register their costs, especially when they
are located in different jurisdictions.
The National Court, in its judgment of 27 September 2007, analysed the case of a subsidiary that is providing an industrial
service to its controlling company. The contract establishes that the former will compensate the subsidiary for the service’s
related expenses. After analysing the usual margin profit applied to the industrial sector in which the service is provided
(through external comparables) and the risks assumed by the parties, the tax authority decides to apply a margin established in
the Public Sector Contract Law (6%) over the total expenses assumed by the subsidiary when providing the service.
Example
Company A, resident in country A, carries toll manufacturing services of TVs for a manufacturer resident in country B.
Company A is remunerated as follows:
Direct and indirect costs of assembly = EUR 1,000.

General expenses and profit margin = EUR 800.
Total = EUR 1,800.
Company C, resident in country C, incorporated a subsidiary (Company D) in country D to carry out toll manufacturing
services of TVs.
TVs assembled by Company A and Company D are very similar and the functions carried out and risks assumed by
companies A and D are comparable.
Indirect costs borne by Company D amount to EUR 1,200.
The cost-plus method could be used to assess the arm’s length value.
Direct and indirect costs of Company D = EUR 1,200.

General expenses and profit margin (80%) = EUR 960.
Arm’s length price = EUR 2,160.
4.7. Transactional net margin method

The TNMM was introduced by Law 36/2006 in order to provide consistency with the practice of European transfer pricing
analysts. The former LIS ascribed a subsidiary character to this method.
The TNMM is a method based on examining the net profit margin relative to an appropriate base (e.g. cost, sales or assets,
depending on the circumstances of each case) that a taxpayer realized from a controlled transaction. The TNMM differs
from the cost-plus and resale price methods, which compare gross profit margins. However, the TNMM requires a level of
comparability similar to that required for the application of the cost-plus and resale price methods.
The TNMM is normally applied to the least complex party that does not contribute to valuable or unique intangible assets. As
the TNMM measures the relationship between net profit and an appropriate base, such as sales, costs or assets employed, it is
essential to choose the appropriate base, taking into account the nature of the business activity.
As this method is based on net profits, it only includes operating incomes; this means that financial costs, extraordinary profits
and tax costs are excluded.
The main difficulty that arises when applying this method is the selection of the profit level indicator. There are neither legal
guidelines nor any case law, so it relies on an analysis of the kind of activity developed by the tested party, data available,
external comparables, operation’s circumstances and features. Generally, sales are used in trading activities sector, whereas
costs are preferred in manufacturing activities.

Another weakness is the multiple factors that affect net margin profits. In this regard, even in the same sector, companies may
gain different net margin profits.
This method would be appropriate in a scenario of a global distribution network.
Example
A subsidiary distributes its controlling company products in Spain. Its total 2013 income amounts to EUR 1 billion. A third
independent company, which functions are comparable to the subsidiary ones, obtained a net profit benefit margin of 7%.
According to this, the subsidiary company should obtain a total net profit of EUR 70 million.
4.8. Profit split method

Under this method, the overall result of the transaction is allocated among the related parties involved in the related-party
transaction, taking into account the risks assumed, assets involved and functions performed by each of them.
The profit split method would be appropriate in a scenario of highly complex transactions within the supply chain of a group of
companies.
Tax authorities would allow using both the “contribution” and the “residual” analysis.
The tax authorities have issued no guidance regarding the application of this method.
Example
The total profit obtained by a related operation between a controlling and a subsidiary company is EUR 10 million. Firstly,
one allocates the part of the benefit that compensates the companies’ costs. Secondly, one must allocate the excess profit
according to the functions developed by each company, for example one can check the R&D investments of each party.
4.9. Other methods

The LIS allows that, in case it is not possible to apply any of the above-mentioned methods, other generally accepted methods
or valuation systems that observe the arm's length principle might be applicable.
There are verification methods established in article 57 of the General Tax Law (Ley General Tributaria, LGT) that might also be
used for valuation purposes, namely:
- capitalization or imputation of income at the percentage established by the law of each specific tax, or estimation based on
the values contained in the official tax registers;
- average market values;
- official quotation prices on domestic and foreign markets;
- valuation by an expert of the tax authorities;
- contrary expert appraisal; and
- any other means that are specifically provided under the law governing each tax.
However, article 18(14) of the LIS expressly states that the asset valuation for the purposes of other taxes shall not have an
effect on the market value of transactions between related parties for the purposes of the corporate income tax, the individual
income tax or the non-resident income, unless a rule expressly provides otherwise.
There is no case law available in this respect.
Also, for the transfer of shares in a company or a business unit, usually the discounted cash-flow method or the net asset value
method is used (National Court, 11 December 2014).

4.10. Combined use of methods

The Spanish transfer pricing rules do not specifically provide for the possibility of using a combination of methods. In principle,
a combination of methods could be used if it was accordingly justified. However, the use of several methods would be helpful to
contrast the different results among them.
5. Intangibles
5.1. Definition and classification of intangible property
The Spanish transfer pricing rules do not contain a specific definition of intangible property. Spain follows the principles of
the OECD Transfer Pricing Guidelines. As per Chapter VI, paragraph 6.6 of the OECD Transfer Pricing Guidelines, “the word
’intangible’ is intended to address something which is not a physical asset or a financial asset, which is capable of being
owned and controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a
transaction between independent parties in comparable circumstances”. Therefore, intangible property can be defined as “the
right to use and exploit industrial and intellectual assets such as patents, trademark, know-how, software, models, designs,
industrial and commercial secrets, etc”.
From a legal standpoint, the following definitions are found which are considered for the purposes of applying the Spanish tax
treaties and the Non-Resident Income Tax Law (NRITL):
- Patent: new inventions that have triggered an inventive activity and are applicable to an industrial process, even in case
of products formed by or including biological material, or a process whereby biological material is created, transformed or
used.
- Utility model: new inventions that have triggered an inventive activity, consisting of giving a configuration, structure or
constitution to an object that result in a practical improvement of its manufacturing process.
- Industrial design: image of total or part of an object, deriving from its features, lines, form, texture or materials of the product
itself or of its complements. This includes industrial or handmade products, except software.
- Brand: all signs that can be graphically represented to distinguish products or services of an enterprise in the market.
- Trademark: all signs that can be graphically represented to identify an enterprise in the market with respect to other
enterprises in the same business sector.
- Intellectual property: all the rights with a wealth and personal character that attribute the relevant rights to the author of
exploitation of literary, artistic and scientific, including software.
- Know-how: knowledge and experiences usable to develop a practical application in the process of manufacturing, supplying
services or marketing, that allow for the production and the sale of products or services, as well as other business activities
related to the organization and administration.
In addition, from an accounting perspective, the Spanish accounting rules provide for a wider definition of the term “intangible”
that includes other assets such as R&D projects, goodwill, transfer rights, software, public licences, etc.
For transfer pricing purposes an intangible must be considered as such, regardless of whether it is legally protected or not.
Actions 8-10 of the BEPS Project introduced a revamped Chapter VI of the OECD Transfer Pricing Guidelines, which includes
supplemental guidance for, among others, transfers of intangibles or rights in intangibles and hard-to-value intangibles (HTVI).
As mandated by the Report on Actions 8-10, the OECD published guidance for tax administrations on the application of the
HTVI approach.[1] Actions 8-10 also include an additional guidance in Chapter II of the OECD Transfer Pricing Guidelines
resulting from revisions to Chapter VI.
5.2. Legislative or administrative guidance on intangibles

As mentioned, the following rules provide for the definition of intangibles:
- Law 24/2015, of 24 July of Patents;
1. OECD, Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles – BEPS Actions 8-10, OECD/G20 Base Erosion and
Profit Shifting Project (OECD 2018), Primary Sources IBFD.

- Law 20/2003, of 7 July of Legal Protection of the Industrial Design;

- Law 17/2001, of 7 December of Brands;
- Royal Legislative Decree 1/1996, of 12 April of the approval of the Intellectual Property Law, as amended by Law 21/2014,
of 5 November, to amend the Intellectual Property Law, approved by Royal Legislative Decree 1/1996, of 12 April, and Law
1/2000, of 7 January, Civil Procedure; and
- Royal Decree 1514/2007, of 16 November of approval of the General Accounting Rules.
There is no specific legislation or regulation on the treatment of intangibles for transfer pricing purposes, so the OECD
documents become more relevant in the analysis of intangibles from the transfer pricing perspective.
However, with the implementation of Directive 2018/822 of 25 May 2018 (DAC6), cross-border arrangements involving the
transfer of HTVI within the European Union, as well as between Member States and third countries (as of 1 July 2020), are
reportable and subject to automatic exchange of information (see section 16.2.). On 30 December 2020, the Spanish Official
Gazette published Act 10/2020, transposing the DAC6 Directive.
5.3. Ownership of intangible property

Traditionally, Spanish tax authorities did not challenge legal ownership of intangibles, recognizing legal ownership rather than
economic ownership.
However, arrangements violating the substance-over-form principle contained in article 15 of the Spanish General Taxation Law
would lead to the re-characterization of a particular transaction, taking into account the economic ownership of an intangible
asset.
Moreover, Chapter VI of the OECD Transfer Pricing Guidelines devotes a section to the ownership of intangibles. In this
section, it confirms that determining legal ownership and contractual arrangements is an important first step in the analysis but
it does not confer by itself any right ultimately to retain returns derived by the MNE group from exploiting the intangible. The
ultimate allocation of the intangible returns, costs and other burdens related to intangibles among members of the MNE group,
is accomplished by compensating for functions performed, assets used and risks assumed in the development, enhancement,
maintenance, protection and exploitation (DEMPE) of intangibles.
It is important to note that the OECD/G20 BEPS Project Action 5 Final Report published in October 2015[2] (Action 5 Report)
contains one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review
in order to ensure timely and accurate implementation and thus safeguard the level playing field. One part of the Action 5
minimum standard relates to preferential tax regimes where a peer review is undertaken to identify features of such regimes
that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other
jurisdictions. All members of the Inclusive Framework on BEPS (BEPS IF), including Spain, commit to implementing the Action
5 minimum standard, and commit to participating in the peer review.
Under the BEPS IF, the Forum on Harmful Tax Practices (FHTP) has the task of reviewing compliance with the BEPS Action 5
minimum standard. Since the start of the BEPS Project, the FHTP has reviewed a significant number of preferential regimes.
The results of these regimes are published in the Action 5 Report, the 2017 progress report,[3] the 2018 progress report,[4]
and in July 2019, the BEPS IF released updated conclusions on the review of preferential regimes. As new results become
available, the FHTP publishes them on a regular basis on the OECD’s website. Spain’s partial exemption for income from
certain intangible assets (patent box regime) was inconsistent with the nexus approach for IP assets acquired from related
parties for the period from 1 January 2017 to 31 December 2017 and for new taxpayers entering the regime in the period from
1 July 2016 to 31 December 2017.
As a result, this Spanish patent box regime has been modified with effect from 1 July 2016 (through the 2016 Budget Act) and
is adapted in accordance with the BEPS Action 5 criteria and OECD principles.
2. OECD Ctr. for Tax Policy and Admin., Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 – 2015
Final Report, OECD/G20 Base Erosion and Profit Shifting Project (OECD 2015), Primary Sources IBFD.
3. OECD, Harmful Tax Practices – 2017 Progress Report on Preferential Regimes: Inclusive Framework on BEPS: Action 5, OECD/G20 Base Erosion and Profit
Shifting Project (OECD 2017), available at http://www.oecd.org/ctp/harmful-tax-practices-2017-progress-report-on-preferential-regimes-9789264283954-
en.htm (accessed 10 Feb. 2022).
4. OECD, Harmful Tax Practices – 2018 Progress Report on Preferential Regimes: Inclusive Framework on BEPS: Action 5, OECD/G20 Base Erosion and Profit
Shifting Project (OECD 2018), available at http://www.oecd.org/ctp/harmful-tax-practices-2018-progress-report-on-preferential-regimes-9789264311480-
en.htm (accessed 10 Feb. 2022).

Henceforth, the fiscal systems about intangible property have to overcome a substantial activity test in order to demonstrate a
direct nexus between the income receiving benefits and the expenditures contributing to that income.
5.4. Transfer pricing methods

Once again, there are no special rules for the valuation of the use of intangible property (know-how, patents or trademarks).
Guidelines, such as fixed, predetermined “normal values” acceptable as fair do not exist; therefore, the general rule is also
applicable to this type of transaction. Due to the difficulty in finding a comparable uncontrolled price, every case must be
judged independently, taking into account the studies and factors that the associated companies involved have used in their
determination of the consideration in a transaction involving intangible property.
Chapter VI of the OECD Transfer Pricing Guidelines provides guidance regarding the selection of the most appropriate transfer
pricing method in a matter involving the transfer of intangibles or rights in intangibles. In this regard, the general principles
apply, but attention should be given to (i) the nature of the relevant intangibles, (ii) the difficulty of identifying comparable
uncontrolled transactions and intangibles in many cases, and (iii) the difficulty of applying certain of the transfer pricing
methods.
5.5. Comparability factors

The general comparability factors apply.
Chapter VI of the OECD Transfer Pricing Guidelines refers to some of the specific features of intangibles that may prove
important in a comparability analysis involving transfers of intangibles or rights in intangibles. Some of these features
are exclusivity; extent and duration of legal protection; geographic scope; useful life; stage of development; rights to
enhancements, revisions and updates; and expectation of future benefit.
5.6. Valuation methods

Although they are not expressly stated in the Spanish transfer pricing regulations, certain indicators, based on the revenue
generated by the intangible assets, such as the net present value, the internal revenue return, the excess of profits or the cost
savings, may be used to calculate the expected revenue generated by an intangible.
Other methods focusing on the costs of the intangible would be based on an approach to the different costs inherent to the
reproduction or replacement of the relevant intangible.
5.7. Sale, licensing and other means of transfer or use of intangibles

Sales of intangibles by foreign companies to Spanish companies would have no direct tax consequences in Spain, since the
foreign seller would not be regarded as deriving any Spanish-sourced income.
However, the licence of intangibles would have certain tax effects:
Under article 25 of the NRITL, royalties are subject to a withholding tax of 24% (for residents in the EU Member States and the
EEA countries, 19% from 2016 onwards), unless the exemption on royalties paid to EU associated licensors applies.
Otherwise, tax treaty rates or exemptions would be applicable.
5.7.1. Transfers of technology developed by a Spanish undertaking

5.7.1.1. The Spanish undertaking remains the owner of the technology
Law 16/2007, of 4 July, approved a tax regime for IP income (patent box regime) with effect for tax periods commencing as
of 1 January 2008. This tax regime was amended by (i) Law 14/2013, of 27 September, with effect from 1 January 2013, to
any arrangement executed as of 1 October 2013, and (ii) with effect from 1 July 2016, Law 48/2015, of 29 October (the 2016
Budget Act).
The patent box regime is ruled in article 23 of the LIS, according to which part of the net income (i.e. deducting depreciation
and expenses directly relating to the intangibles) obtained from granting the right to use and exploit certain intangible assets is
exempt for corporate income tax purposes, under the following conditions:

- the amount resulting from multiplying 60% by a coefficient that depends on the direct expenses for the creation of the
intangible and those for the acquisition of the intangible; resulting in a 60% exemption applicable for companies which have
created the IP, proportionally reduced for companies which have not created the IP;
- income must derive from granting the right to use and exploit industrial property rights, including patents, drawings or
models, plans, formulas or secret procedures, and rights on information connected to industrial, commercial or scientific
experiences. Income from the sale of these intangibles also benefits from the exemption if the parties do not belong to the
same group of companies as defined in article 42 of the CC, regardless of their residency and the obligation to prepare
consolidated accounts.
Consequently, the reduction does not cover income from exploitation of other assets such as image rights, trademarks,
literary, artistic or scientific works, films, software, industrial, commercial or scientific equipment or technical assistance;
- the licensee must assign the rights to use and exploit the intangible assets to a business activity;
- should the licensor and licensee be related parties, income derived by the licensor is not exempt if the result of using the
industrial property rights consists of goods or services rendered by the licensee that generate to the licensor tax deductible
expenses;
- the licensee is not resident in a tax haven jurisdiction (for tax haven jurisdictions that are EU members, i.e. Gibraltar at this
moment, the exemption applies if the taxpayer proves that the licensee carries out a business activity as defined in article 5
of the LIS, and that the transfer or cession responds to valid economic reasons);
- in the event of licence agreements including ancillary services, their respective consideration must be specified;
- intangible assets have to be thoroughly recorded in the books of the licensor in order to accurately determine the income
and direct/indirect expenses they generate.
The LIS provides for a transitory regime for which only the intangibles acquired after 29 September 2013 (date on which
Law 14/2013 came into force) would benefit from the regime introduced by the LIS (article 23). Previous acquisitions would
be subject to the former regime approved by Law 16/2007.
This exemption, which was approved by the European Commission, is compatible with tax credits for R&D and Technology
Innovation activities explained below.
IP Income under the Basque Country regime
Each of the three provinces of the Basque Country (Alava, Guipuzcoa and Vizcaya) also approved a Patent Box Incentive in
the form of an exemption regime on gross income obtained from the granting of the right to use and exploit certain intangible
assets. Capital gains from the transfer of these intangible assets are also excluded from the exemption regime. However, the
following significant differences exist between the state IP regime and the regime existing under the local corporate income tax
acts approved by each Basque province:
- a 60% exemption could apply to self-developed IP rights and a 30% exemption to IP rights acquired from third parties. This
possibility, which does not exist under the state regime, would allow exploring efficient structures by transferring qualifying
IP rights to a single company that licenses them to other companies in the group;
- qualifying IP rights include not only industrial property (which is the case under the state regime), but also certain intellectual
property (including domain names, trademarks and trade names). Image rights, literary, artistic or scientific works, films,
software for exclusive commercial application and industrial, commercial or scientific equipment are also excluded;
- exemption is in any event applicable, irrespective of as to whether IP income is much higher than its cost.
Consequently, the IP regime in the Basque Country turns out to be notably more beneficial than the state regime. The local
rules shall apply to every company with tax residence in the Basque Country that had generated a turnover equal or lower than
EUR 7 million in the previous tax year. Otherwise, application of the local IP regime would additionally require that more than
25% of the turnover of the previous tax year had derived from transactions carried out in the Basque Country.
From 1 January 2015, IP income under the Navarre Statutory regime also benefits from the Patent Box incentive, with a 60%
exemption applying to self-developed IP rights and a 30% exemption applying to IP rights acquired from third parties. This
qualified IP regime does also include brands, trademarks and trade names, which were not included in the former Law
According to article 29 of the LIS, royalties paid to a Spanish company under the general corporate income tax system are
subject to the general 25% rate from 2016 (28% in the provinces of the Basque Country and Navarra), unless exemption for
IP income applies. Should royalties be subject to withholding tax, the Spanish recipient could apply a tax credit for the tax

suffered at source, with the limit of the tax that would have been imposed in Spain on the royalty (unless the applicable tax
treaty provided for the exemption method). The tax credit would apply to the net income after having subtracted expenses
incurred for obtaining the royalty (including, in this case, royalties paid by the Spanish company for the right to use and exploit
the IP right).
5.7.1.2. The Spanish undertaking transfers the ownership of the intellectual property abroad
The transfer of IP rights may generate a capital gain in the hands of the transferor for the difference between the market value
of the IP right and its value in the books (should the IP right be registered as an intangible asset), with the general tax rate for
corporate income tax purposes being 25% from 2016. Consequently, the transfer of newly created or scarcely exploited IP
rights would trigger a minor direct tax impact in Spain.
The transfer could be carried out by way of a contribution in-kind, so that the transferor would obtain a stake in the acquirer’s
share capital in exchange. Nonetheless, should the acquirer be a foreign tax resident, the contribution would not be eligible for
application of the tax deferral regime and potential capital gains would be subject to Spanish corporate income tax.
The LIS has removed a 12% tax credit for reinvestment to capital gains from the transfer of qualifying assets, including IP
rights registered in the books of the transferor. There is a transitory regime according to which the 12% tax credit might still be
applicable after 1 January 2015 to income deriving from transfers of assets before 1 January 2015 provided it is reinvested in
qualifying assets within the 3 years following the transfer. Also, tax credits generated before 1 January 2015 can be used after
1 January 2015 (24th transitory disposition of the LIS).
There is no particular reference in the LIS in relation to valuation of intangible assets. In practice, the tax administration would
rely on corporate income tax rules for valuation of related-party transactions (section 18 of the LIS, under which transactions
between related parties must be assessed at fair market value) and Chapter VI of the OECD Transfer Pricing Guidelines on
transactions with intangible assets.
Usually, the most suitable valuation method to be used in the context of the transfer of an IP right to a related party would be
the CUP method. This would require identifying internal comparables, i.e. similar transactions carried out by the taxpayer with
independent parties. Should there not be internal comparables, it could be possible to seek external comparables using, for this
purpose, specialized databases. As an alternative to the CUP method, the TNMM could be used.
As stated in the OECD Transfer Pricing Guidelines, determination of the arm’s length price for a transfer of IP rights should
take into account both the perspective of the transferor and the transferee. Consequently, the arm’s length principle requires
an evaluation of the conditions made or imposed between the related parties at the level of each of them, and the specific
conditions of the transaction must be considered, including as to whether the transferor shall continue using the intangible
asset further to their disposal in a different legal capacity (usually as a licensee). Factors of relevance for evaluation purposes
are the amount, duration and riskiness of the expected benefits from the exploitation of the intangible property, the nature of the
property right and the restrictions that may be attached to it (such as geographical or time limitations), the extent and remaining
duration of its legal protection and any exclusivity clause that may be attached to the right.
Additionally, in the context of offshoring processes, it is important to examine whether the transferor has developed local
intangibles and, if so, what their nature and value are, as well as whether they can be transferred or not depending on their link
to the local operation.
5.7.2. Acquisition of foreign technology through a licence

For non-residents, income from royalties is subject to a general 24% withholding tax, according to the NRITL (19% for tax
residents in the EU Member States and the EEA countries from 2016 onwards). Royalties paid to an associated company with
tax residence in another EU Member State under terms of the Interest and Royalties Directive (Council Directive 2003/49/EC)[5]
are tax exempt in Spain as from 1 July 2011.
As to the computation of the taxable base, the NRITL was amended by Law 2/2010 of 1 March in order to adapt Spanish
legislation to the doctrine issued by the Court of Justice of the European Union in the Gerritse case (C-234/01). According
to this, the taxpayer with tax residence in an EU Member State is able to deduct from the taxable base of royalty income
expenses that the taxpayer can prove (i) to be directly related to the income derived from Spain and (ii) to have a clear nexus
with the activity performed in Spain. Nonetheless, the withholding tax is calculated on the gross amount and the taxpayer
should apply for the refund later on.
5. Council Directive 2003/49/EC of 3 June 2003 on a Common System of Taxation Applicable to Interest and Royalty Payments Made Between Associated
Companies of Different Member States (2003), Primary Sources IBFD.

This rule has generated some debates in doctrinal circles, including the one related to the possibility of deducting those
expenses, also in the case of application of the tax treaty rate and despite of the wording of conventions signed between Spain
and EU Member States which refer to the gross income as the taxable base.
Additionally, if a double tax treaty exists between Spain and the country of residence of the recipient of the royalty, the reduced
tax rate provided in the treaty shall apply as far as it is more beneficial than the domestic rate. Some interesting tax treaties in
this regard are those signed by Spain with Hungary and Malta, which provide for a 0% withholding tax on royalties. Switzerland
also states a 5% withholding tax at source (withholding tax is 0% from 1 July 2011, provided the payer and recipient are
associated entities under the terms of the Interest and Royalties Directive). Also, the protocol to the tax treaty between Spain
and the United States provides for a 0% withholding tax on royalties. This tax treaty has been published in the Spanish Official
Gazette on 23 October 2019, and being effective since 27 November 2019 (see Supreme Court, 27 November 2015 in relation
to treaty shopping case with Hungary).
5.8. Embedded intangibles and package deals

Chapter VI of the OECD Transfer Pricing Guidelines includes section D.5 related to supplemental guidance for transactions
involving the use of intangibles in connection with the sales of goods or the provision of services.
5.9. Round-tripping
Round-tripping schemes are not very common in Spain. Certain business models that are considered abusive might have been
implemented, although there is no relevant case law.
There are certain court resolutions addressing the business restructuring effects in the Spanish tax base of certain MNEs that
have focused in the PE exposure rather than in the transfer pricing issues.
5.10. Assignment of employees

Assignment of employees should be valued under the general transfer pricing rules. In this sense, certain parameters related to
both intercompany services and licensing of intangibles should be taken into account.
For example, there are certain cases, when the employees are deemed to be supplying technical assistance services treated
as royalties for the purposes of the relevant tax treaty, where the services may be assimilated to know-how licences that should
be taxed as royalties and may trigger withholding tax.
5.11. Commensurate-with-income standard

There are no commensurate with income provisions applicable.
6. Intra-Group Services
6.1. Sale and use (lease) of tangible property
With regard to transactions between associated enterprises, the LIS partially incorporates the OECD approach and regulates
in detail certain aspects of controlled transactions. However, there are still many unresolved issues related to tax controversies
arising from these transactions. The main problem is seen in the fact that the LIS seeks to provide for the uniform tax treatment
of a set of different transactions, which have varying characteristics. As a result, there are certain transactions to which the
general rules are difficult to apply.
It is, therefore, necessary to distinguish among several categories of controlled transactions between associated enterprises,
and to determine a specific tax treatment depending on their nature. The heterogeneous nature of such transactions that
parties may undertake does not allow for a homogeneous tax treatment of all of those transactions. The possible transactions
that can be undertaken fall into four categories: transactions benefiting shareholders; transactions benefiting the entity; loans
which are actually disguised capital contributions; and other controlled transactions.
According to the OECD Transfer Pricing Guidelines, it is necessary to determine accurately the income of the entity and
characterize the transaction based on its true nature, in order to tax the true contributory capacity of the associated enterprises.

Article 18 of the LIS refers to the OECD methods described above for determining an arm’s length price for sales of tangible
property. As there are no special rules for the valuation of the use of tangible property (leasing) in Spain, such transactions are
subject to the general transfer pricing rules.
6.2. Services
6.2.1. Guidance on services
Article 18(5) of the LIS provides for certain proof requirements regarding the existence of a relevant intercompany service. The
international principles regarding intercompany services have not always been clear and have not been interpreted properly by
the Spanish courts and administrations.
For this reason, the OECD Transfer Pricing Guidelines and the conclusions of the works of the EU JTPF must be followed.
Intercompany services are specifically regulated in article 18(5) of the LIS. Under this clause, it is required that the service is:
- real;
- duly documented;
- registered in the accounts in the due tax period; and
- co-related with the revenue income.
See National Court, 26 October 2015 about the reality of the related-party services.
6.2.2. Definition of services

There is no general definition of services in Spanish tax law.
Basic legislation, such as the Civil Code or the Commercial Code, does not define services either.
From a VAT perspective, services could be defined as any transaction different from a delivery of goods.
There is no case law in relation to this.
There are no safe harbour rules prescribed for low-value-adding intragroup services. However, as a source of interpretation, the
work of the EU JTPF on low-value-adding intra-group services and the OECD TPG may be used.[6] Chapter VII of the OECD
Transfer Pricing Guidelines also introduces a simplified approach for low-value-adding services, in addition to other changes
and clarifications.
6.2.3. Benefit test

There are no special rules in Spain governing the valuation of services.
Article 18(5) of the LIS does not require a pre-existing written contract (which certifies the date of signature) for any
management service expenses charged to a Spanish entity by a related party. Yet, this idea is expanded to cover all kinds of
services.
The wording of article 18(5) requires that the services provide, or have the potential to provide, a benefit or advantage to the
taxpayer, in order for the expense to be allowed as a deduction. This issue must be analysed in light of the OECD Transfer
Pricing Guidelines:
The benefit test determines whether an intra-group service has been rendered, depending on whether the activity performed for
one or more group members by another provides a group member with economic or commercial value to enhance or maintain
its business position.
This can be determined by considering whether an independent enterprise in comparable circumstances would have been
willing to pay for the activity if performed for it by another independent enterprise.
Once it is certain that an intra-group service has been rendered, it is necessary, as for other types of intra-group transfers,
to determine whether the amount of the charge, if any, is in accordance with the arm’s length principle. This means that the
charge for intra-group services should be that which would have been made and accepted between independent enterprises in
comparable circumstances.
6. OECD Transfer Pricing Profile, Spain, available at https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-spain.pdf (accessed 10 Feb. 2022).

Simplified determination of arm’s length charges for low-value-adding intra-group services

Low-value-adding intra-group services for the purposes of the simplified approach are services performed by one member or
more than one member of an MNE group on behalf of one or more other group members which:
- are of a supportive nature

- are not part of the core business of the MNE
- do not require the use of unique and valuable intangibles and do not lead to the creation of unique and valuable intangibles,
and
- do not involve the assumption or control of substantial or significant risk by the service provider and do not give rise to the
creation of significant risk for the service provider.
As already mentioned, under the arm’s length principle an obligation to pay for an intra-group service arises only where
the benefit test is satisfied, i.e. the activity must provide the group member expected to pay for the service with economic
or commercial value to enhance or maintain its commercial position. This in turn is determined by evaluating whether an
independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by
another independent enterprise or would have performed the activity in-house for itself.
However, under the EU JTPF doctrine, because of the nature of low-value-adding intra-group services, such determinations
may be difficult or may require greater effort than the amount of the charge warrants.
Tax administrations should therefore generally refrain from reviewing or challenging the benefit test when the simplified
approach has been applied under the established conditions and circumstances.
The initial step in applying the simplified approach to low-value-adding intra-group services is for the multinational enterprise
group to calculate, on an annual basis, a pool of all costs incurred by all members of the group in performing each category of
low-value-adding intra-group services.
As a second step, the multinational enterprise group should identify and remove from the pool those costs that are attributable
to services performed by one group member solely on behalf of one other group member.
The third step is to allocate among members of the group the costs in the cost pool that benefit multiple members of the group.
Finally, in determining the arm’s length charge for low-value-adding intra-group services, the multinational enterprise provider of
services shall apply a profit mark-up to all costs in the pool.
The same mark-up shall be utilized for all low-value-adding services irrespective of the categories of services. The mark-up
shall be equal to 5% of the relevant cost.
The mark-up under the simplified approach does not need to be justified by a benchmarking study.
Tax administrations adopting the simplified approach to low-value-adding intra-group services set out in this section may
include an appropriate threshold to enable them to review the simplified approach in cases where a certain threshold is
exceeded.
See sections 6.2.1. and 6.2.11.
6.2.4. Scope of shareholder expenses

The LIS does not specifically address the delimitation of shareholders’ costs. In this sense, those costs that create a benefit for
the shareholder should be attributed to it.
In this regard, the OECD Transfer Pricing Guidelines should be followed. The following would be regarded as shareholder
activities which should not be regarded as intercompany services:
- Costs related to the legal structure of the parent company, such as shareholder meetings, issuance of shares and other
expenses related to the board of directors.
- Costs related to the accounting and reporting obligations of the parent company.
- Costs related to the fund-raising activities related to the investment in the subsidiary.
- Costs related to the management, control and monitoring of the investment, unless there is proof that this service can be
supplied by third parties under market conditions.

Other centralized activities, which directly or indirectly may benefit a related company, are not treated as shareholder activities.
6.2.5. Methods applied

In practice, Spanish MNEs either use the CUP method or the cost-plus method which are the preferred methods in accordance
with article 18(4) of the LIS. See section 4.6.
Example
(National Court, 27 September 2007) A subsidiary is providing an industrial service to its controlling company. The contract
establishes that the former will compensate the subsidiary for the service’s related expenses. After analysing the usual margin
profit applied to the industrial sector in which the service is provided (external comparables) and the risks assumed by the
parties, the tax authority decides to apply a margin established in the Public Sector Contract Law (6%) over total expenses
assumed by the subsidiary when providing the service.
6.2.6. Cost basis

The LIS does not address which costs should be taken into account when determining the mark-up charged to the recipient of
an intercompany service. However, in general terms, those costs effectively borne and the expenses paid for the supply of the
services may be taken into account.
If these services are rendered in favour of more than one related party, costs relating to the service must be consistent with the
respective benefit received by each of the recipients. If the costs cannot be assigned individually to each party, they must be
assigned based on rational criteria.
Additionally, no deduction is allowed for any service-related expenses that correspond to transactions conducted, directly
or indirectly, through persons or entities that are established in tax haven jurisdictions (i.e. classified as such under Spanish
tax law), unless the taxpayer proves that the transactions have actually been carried out. This rule tries to avoid the tax base
erosion of Spanish taxpayers, who must prove that the transactions entered into with tax havens have actually existed, through
the relevant supporting documentation (e.g. invoices, proof of the existence of the services, etc.).
6.2.7. Profit element

In accordance with the arm’s length principle, the service supplier should get the relevant profit as if the service had been
supplied to a third party under market conditions. In this sense, for example, the profit element could be, although it is not
required, omitted when one company acted as a mere payer of a service supplied by a third party, being the reimbursement
sufficient for that purpose.
6.2.8. Documentation
The taxpayer should provide the tax authorities with the relevant documentation that would help proving the existence of a
relevant service. For this purpose, the relevant taxpayer, regardless of whether it is the supplier or the recipient of the services,
should provide any contract, invoice, and other material means of proving the existence of a service.
6.2.9. Common audit issues

The common issues regarding intercompany services are mainly focused on their tax deductibility.
In addition, where the supplier of those services is a Spanish corporate taxpayer, the valuation of the service might be
challenged. To avoid those issues in the context of a tax audit, taxpayers should properly comply with the documentation
requirements and should be able to prove that the service has actually been supplied and that it is related to the generation of
income.
6.2.10. Tiered services

Tiered services, i.e. services that are received from related or third parties and subsequently rendered to group companies,
should be valued at the price given by the supplier, unless the intermediary company adds any value to those services.
6.2.11. Non-chargeable services

The Spanish LIS or RIS does not provide for any restrictions regarding non-chargeable intercompany services.

Non-chargeable services would suffer the relevant valuation adjustments either from an accounting perspective or from a tax
perspective.
7. Cost Contribution Arrangements

7.1. Definition
Chapter VIII of the OECD Transfer Pricing Guidelines provides general guidance for determining whether the conditions
established by associated enterprises for transactions covered by a cost contribution arrangement (CCA) are consistent with
the arm’s length principle.
CCAs are special contractual arrangements among business enterprises to share the contributions and risks involved in the
joint development, production or the obtaining of intangibles, tangible assets or services with the understanding that such
intangibles, tangible assets or services are expected to create benefits for the individual businesses of each of the participants.
A key feature of a CCA is the sharing of contributions. In accordance with the arm’s length principle, at the time of entering into
a CCA, each participant’s proportionate share of the overall contributions to a CCA must be consistent with its proportionate
share of the overall expected benefits to be received under the arrangement. If contributions to and benefits of the CCA are
not valued appropriately, this will lead to profits being shifted away from the location where the value is created through the
economic activities performed.
The Spanish legislation does not provide for a definition of CCAs. However, contributions made under CCAs are specifically
regulated in article 18(7) of the LIS and article 18 of the RIS.
7.2. Types allowed

From an OECD perspective, two types of CCAs are commonly encountered: those established for the joint development,
production or obtaining of intangibles or tangible assets (“development CCAs”); and those for obtaining services (“services
CCAs”).
The Spanish LIS does not limit the scope of CCAs. In this sense, CCAs may be implemented in connection to any kind of
service supplied by one or several related entities which create a benefit to the participants.
In practice, it is common that Spanish companies belonging to MNEs bear contributions to CCAs mostly devoted to the R&D
projects.
7.3. Benefit test and criteria

Under article 18(7) of the LIS, in order for a deduction to be allowed for the charges derived from contributions to a CCA, the
CCA must meet some requirements as explained in sections 7.4., 7.5. and 7.6.
In this sense, contributions made by each member must be valued as a function of the expected benefits for each member,
based on a rational criterion. The contributions must therefore be determined from quantitative (expected benefits) and
qualitative criteria (the rationality).
There is no further guidance from the Spanish tax authorities and no specificities in relation to the criteria of the OECD Transfer
Pricing Guidelines in this regard.
7.4. Participants
Entities contributing to a CCA must be entitled to the ownership or any other similar right in economic terms, with regard to the
rights or assets developed.
7.5. Conditions to the agreement

The LIS requires a written agreement (article 18(7) of the LIS).
The CCA must foresee, where possible, any changes in circumstances affecting the agreement by providing for compensatory
payments.
Article 18 of the RIS provides for the obligation of the participant to identify all the related parties involved in such an
agreement, the scope of the activities, the specific projects covered, its duration, the contribution and profit criteria in the

CCA, the specific tasks to be performed by each party, and the consequences of the separation from or entrance into such
agreements, as well as any other relevant economic circumstance.
7.6. Amount of contribution and profit element

Contributions made by each member must be valued as a function of the expected benefits for each member, based on a
rational criterion.
In-kind contributions should be valued at market value and, thus, such contribution would be treated as a transfer, and the
difference between the acquisition cost and the market value of the contributed asset should be recognized as income of the
contributor. It is not a common practice to use stock options in the context of a CCA. Contributors would be companies, so
stock options would not have any effect here.
Balancing payments should be allowed, although the taxpayer should be able to prove the contribution.
7.7. Buy-in and buy-out

In the absence of special guidance, the Spanish authorities are likely to accept the OECD guidance on buy-in/buy-out
provisions. For example, whether a buy-in payment needs to be triggered depends on the character of the cost contribution
agreement and on what has already been achieved by the existing members.
The tax authorities will likely challenge any buy-in payments made by a Spanish company in a situation where it joins an
existing cost-sharing arrangement and it cannot document any clear, direct benefit from entering into such an arrangement.
7.8. Arm’s length adjustments

There are no specific rules in respect of the arm’s length adjustments. The general rules apply.
8. Intra-Group Financing
8.1. Intercompany loans and deposits
8.1.1. Loan amount: debt or equity
Loans would not be re-characterized as equity for Spanish tax purposes. However, in certain cases, if the terms of a loan
provide for an undefined expiration of the same or an unusually long term (i.e. 50 years), the Spanish tax authorities might try
re-characterizing the loan as equity and, thus, preventing the deductibility of interests.
Interest paid on intra-group loans for the purpose of (i) acquiring from another company of the same corporate group an interest
in the share capital or equity of any type of companies or (ii) contributing share capital or equity in another company of the
same corporate group is not tax deductible, unless these transactions are supported by sound business reasons (article 15(h)
of the LIS). Interest paid on intra-group profit participating loans is not tax deductible.
In all other cases, net financial expenses exceeding 30% of the operating profits of a company, as defined by the Spanish
tax legislation, are not tax deductible (article 16 of the LIS). For that purpose, “net financial expenses” means the difference
between the financial expenses (except for those not deductible under the above-mentioned limitation) and the interest income
obtained. “Operating profits” means the accounting profits disregarding (i) the depreciation of fixed assets, (ii) the subsidies on
non-financial fixed assets and (iii) the portfolio depreciation, and adding up the financial income from qualifying participations
(i.e. income from shareholdings of at least 5% or with an acquisition cost higher than EUR 20 million, unless they were acquired
through an intergroup loan the financial expenses of which are not tax deductible under article 15(h) of the LIS). In all cases,
net financial expenses up to EUR 1 million are tax deductible. The net financial expenses that have not been tax deductible in
a particular tax year may be carried forward over the following periods in which the 30% limit is not exceeded. In the event that
the financial expenses exceed EUR 1 million but are below the 30% limit, the difference between such 30% and the percentage
of the operating profit of a tax year can be added up to the limit of the subsequent 5 tax years. This limit on the deductibility of
debt financing is not applicable to financial entities.
In the case of debt related to the acquisition of an interest in the share capital or equity of any type of entity (irrespective of
the relationship between the acquirer and the transferor), the tax deductibility is limited up to 30% of the operating profits
of the acquiring company. For computing this limitation, it shall not be considered the operating profit of a company that is
incorporated in the tax consolidation group or is merged into the acquiring company within 4 years following the acquisition.

Nevertheless, this limitation does not apply in the tax year of the acquisition if the level of indebtedness is lower than the 70% of
the acquisition price, and will neither apply in the following years provided that the debt is proportionally reduced in each of the
8 coming years up to 30% of the acquisition price.
There is no case law in this respect.
In a tax group scenario, the above-mentioned restrictions apply to the tax group.
Example
Year 1: The company has operating profits of EUR 10 million. Net financial expenses amount to EUR 2 million.
Limit 30% of the operating profit = EUR 3 million
Comparison Net financial expenses < Limit (2 < 3)
Surplus EUR 1 million
Year 2: The company has net financial expenses of EUR 5 million and operating profits of EUR 10 million.
Extra surplus EUR 1 million
Comparison Net financial expenses > Limit (5 > 4)
Temporary adjustment Positive adjustment of EUR 1 million
Year 3: The company has net financial expenses of EUR 2 million and operating profits of EUR 10 million.
Comparison Net financial expenses < Limit (2 < 3)
Temporary adjustment drawback Negative adjustment of EUR 1 million
8.1.2. Interest amount: arm’s length interest rate

8.1.2.1. Interest charged
Article 18 of the LIS, which allows the tax authorities to impute arm’s length consideration to transactions between related
parties, also applies to interest payments. Although not much law has been enacted regarding transfer pricing, interest
payments have been addressed comprehensively. In this regard, special legislation on financial assets was enacted in 1985,
and thin capitalization rules were established for tax periods commencing in 1992 (further developed under article 20 of the
former LIS). From 1 January 2015, new restrictions have been implemented. See section 8.1.1.
The general tax regime applicable to interest payments is contained in both the Individual Income Tax Law (Ley del Impuesto
sobre la Renta de las Personas Físicas) and the LIS. The arm’s length interest is to be determined based on the market value,
taking into account other factors such as (1) the currency in which the loan has been granted, (2) the duration of the loan and
(3) other relevant facts pertinent to each case.
Under the transfer pricing rules of previous article 16 of the former LIS, related companies were free to determine consideration
that is more convenient for their economic policy, as long as Spanish taxation is not reduced or deferred. However, under the
current transfer pricing regime, Spanish companies must value these kinds of financing transactions on an arm’s length basis.
In this context, interest-free loans would rarely be regarded as being at arm’s length.
Effective for tax periods beginning on or after 1 January 2020, Spain has transposed the EU Anti Tax Avoidance Directive
(ATAD) on hybrid mismatches.
8.1.2.2. Transfer pricing methods
Normally, the arm’s length interest rate for an ordinary intercompany loan should be determined by the CUP method. Identifying
the relevant comparable transactions should be possible by using the relevant databases. The comparability will depend on
the credit risk quality of the borrower. In this sense, the impact of the loan in the financial statements of the borrower and the

market interest rates must be taken into account. Finally, the ratios of solvency of the borrower can also be assessed through
the relevant econometric methods.
In any event, the remuneration of other intercompany financial transactions will require a case-by-case analysis focused on
the particular costs and benefits arising from the parties involved in each transaction. The valuation of interest rates under
intercompany loans should be made in comparison to the interest rates and loan terms provided at any time in the market.
8.2. Guarantee fees

The Spanish LIS does not provide for any guidance on how to value the guarantee fees.
However, such valuation may be reached by considering either the cost or savings for the borrower, under a CUP method.
Using the Merton method of the expected default (which essentially assesses the maximum guarantee that an independent
third party would grant in the same conditions) would be a possibility.
The Spanish legislation has not focused on these cases. These cases should be approached under the general rules. The lack
of practice and guidance with regard to guarantees does not allow for solving the case with practical information. Therefore, the
case study has been omitted.
8.3. Cash pooling

Under the Spanish legislation, there are no restrictions on cash pooling agreements. No case law has been promulgated on the
subject.
From a Spanish perspective, both notional pooling and zero balancing arrangements could be used.
Both arrangements are treated as related-party transactions. Notional pooling agreements pose a few difficulties from a
valuation perspective since the non-related bank would fix the applicable interest rate.
Zero balancing arrangements may trigger more difficulties, due to the number of parties and jurisdictions involved. That means
that interest withholding taxes and thin capitalization rules in different countries must be considered. The interest rate, normally
fixed by the parent company that concentrates and allocates the funds, must be at arm’s length.
Income from cash pooling activities in Spain would only be regarded as interest when the centralizing entity effectively acts as a
financial entity. Otherwise, such income would be treated as management fees.
Again, the arm’s length remuneration arising from a cash pooling arrangement may be carried out through an internal and
external research based on the CUP method (i.e. market interest rates on loans and deposits, depending on the position of
the taxpayer as borrower or lender; and analysis of the loans and deposits currently in place with banks), with the information
provided in the financial markets for similar transactions.
9. Business Restructuring
9.1. Specific rules on business restructuring
In general terms, supply chain management in Spain cannot be determined for tax optimization purposes under the current
transfer pricing legislation, as it provides general rules that are applicable to intra-group transactions, regardless of their nature.
Therefore, a case-by-case analysis must be performed, depending on the business activities to be carried out by the Spanish
taxpayer.
The different supply chain management models (i.e. manufacturing contracts, commissionaire structures and distribution
structures) generally trigger the application of article 18 of the LIS, as many intra-group transactions take place under these
situations. In these, two issues must be analysed from a Spanish tax perspective: (i) the existence of a PE of a foreign
company and (ii) compliance with the arm’s length principle in any remuneration paid to commissionaires, distributors or
manufacturers, in the context of article 18 of the LIS.
In addition, it must be taken into account that, in accordance with article 19(1)1 of the LIS, the so-called exit tax would be
applicable. In this sense, the exit tax would be applicable (among others) to unrealized capital gains on assets held by entities
emigrating from Spain, unless they are attached to a PE. However, the European Court of Justice, in the Commission v. Spain
case (C-64/11),[7] declared this exit tax as provided in the former LIS being against the freedom of establishment protected
7. ES: ECJ, 25 Apr. 2013, Case C-64/11, European Commission v. Kingdom of Spain, Case Law IBFD.

under article 49 of the Treaty on the Functioning of the European Union (TFEU).[8] In this respect, the Court does not prevent
the taxation of unrealized gains, although it recommends entering into the relevant mutual assistance mechanisms addressed
to defer the taxation on the capital gain. This decision is consistent with the National Grid Indus case (C-371/10),[9] among
others. In this regard, the current LIS provides the possibility of deferring, not the accrual of the capital gain, but the payment of
the exit tax under the conditions that the LGT rules for any taxes.
9.2. Use of anti-avoidance rules

Certain business restructuring transactions have been scrutinized by the Spanish tax authorities and have led to court cases.
However, the amount of cases is very limited and should not be indicative of the position of the tax authorities or the courts in
this respect.
The arguments used to challenge the business restructuring transactions undertaken have been certainly more focused on the
existence of PEs deriving from a non-effective assignment of risks, assets and functions to a non-resident entity.
In any event, the Spanish anti-avoidance provisions of articles 15 and 16 of the LGT could be applied in those cases where the
substance-over-form principles were infringed (sham transaction doctrine) or where an abuse of law has taken place (conflicto
en la aplicación de la norma tributaria).
It is also worth noting that, with the implementation of DAC6, arrangements involving an intra-group cross-border transfer of
functions and/or risks and/or assets within the European Union, as well as between Member States and third countries (as of 1
July 2020), are reportable and subject to automatic exchange of information if they meet the threshold proposed (see section
16.2.). On 30 December 2020, the Spanish Official Gazette published Act 10/2020, transposing the DAC6 Directive.
9.3. Transfer of a going concern

Transfers of a going concern are treated as a transfer of a set of tangible (and intangible) assets that constitute part of the
business of the seller, and are an autonomous economic unit through which one could carry out a business activity.
In this sense, from a transfer pricing perspective, the market value of a going concern should be determined under the general
valuation methods applied to transfers of companies or businesses.
From an intra-group perspective, the transfer of a going concern in the context of a business restructuring would trigger the
analysis of the risks, assets and functions assigned to each party after such transfer. Accordingly, the transfer pricing policy
resulting from the transfer of a going concern should be reconsidered.
9.4. Termination or substantial modification of existing arrangements

Modifications of existing arrangements should not trigger any tax consequence as long as the remuneration fixed under the
new arrangements is in line with the risks, functions and assets assigned within the group; and the new arrangements are
supported with the real transactions.
9.5. Permanent establishment issues

The conversion of a full-fledged manufacturer into a toll or contract manufacturer
The conversion of a full-fledged manufacturer into a toll or contract manufacturer requires the analysis of the effective transfer
of the relevant risks, assets and functions to the new principal. Such transfer would generally lead to a capital gain in the hands
of the converted entity, which should be compensated for the lower income obtained after the business restructuring.
Spanish tax authorities would focus on whether the pre- and post-restructuring operations have really changed, not only from
a contractual but also from a real perspective. If no real changes are undertaken, the toll manufacturer could be regarded as a
“manufacturing agent” that would be treated as a PE in Spain.
Agency permanent establishment

The agency PE issue is generally analysed from the perspective of the OECD Transfer Pricing Guidelines. In this sense, certain
factors, like the number of principals of an agent and the binding powers of the agent, are relevant. The Spanish tax authorities
8. Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning of the European Union (2008/C115/01), OJ C 115 (9 May 2008), p.
1, Primary Sources IBFD.
9. NL: ECJ, 29 Nov. 2011, Case C-371/10, National Grid Indus BV v. Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam, Case Law IBFD.

have not been focusing on this issue until the recent years. The role of an agent has thus to be analysed from a qualitative
perspective, considering whether it is carrying out most of the activities of the foreign company in Spain.
The existence of an “agency PE” in Spain should be approached on a case-by-case basis. Action 7 of the BEPS Project aims
at preventing the artificial avoidance of PE status and proposes the amendment of the “agency PE” definition in the OECD
Model.
Services permanent establishment

Generally, the services PE concept is not included in the tax treaties signed by Spain (it is included, for instance, in the tax
treaty with China). However, the situation where a foreign company is supplying services in Spain while selling through an
agent may lead to a PE that would include the activities of both the foreign company and the agent, as a whole.
In this sense, the tax authorities and courts (see the Dell case) would understand that the whole arrangement is a complex
operating establishment that creates a PE in Spain.
Other permanent establishment risks in a business restructuring context

Other risks should be assessed in business restructurings when the operations of both entities involved do not really change.
For example, the Spanish tax authorities would focus on how the internal operations of the group have changed and how the
relations with suppliers and clients have changed after a business restructuring.
Article 13(1)a of the NRITL provides for a definition of a PE that could be assimilated to that of the OECD Model. Therefore,
any multinational group should consider whether a post-restructuring scenario could lead to a PE in Spain.
In this sense, on 12 January 2012, the Spanish Supreme Court promulgated a decision, known as the Roche case. Briefly,
that case would exemplify the consequences of converting a manufacturer, importer and full-fledged distributor into a toll
manufacturing agreement and a commissionaire, without modifying the real operations of the restructured entity.
The arguments of the Supreme Court consider that the Spanish entity acted as a manufacturing agent that created a PE.
However, the profits attributed to such PE included not only the manufacturing profits but also the profits from the distribution of
the products.
Other cases (I)

On 18 June 2014, the Spanish Supreme Court issued a resolution upholding that a Spanish entity belonging to an international
group constitutes a PE of another British entity of the group under both the “fixed place of business” and the “dependent agent”
clauses.
The resolution is of special interest in the interpretation of the “fixed place of business” clause, as it follows the trend set by the
decision in the Roche case, which upholds the Spanish tax authorities' functional approach with regard to post-restructuring
schemes and commissioner dealings involving complex business structures in Spain.
Background
The 18 June 2014 decision refers to a case where a Spanish company (SpainCo) that had formerly operated as a full-fledged
manufacturer, importer and seller of products entered into two agreements with its parent entity “BritishCo.” The business
restructuring resulted in a decrease in SpainCo's Spanish tax base.
Under the first agreement, SpainCo acted as an independent sales agent of BritishCo and committed to promote sales for
BritishCo under the price and conditions set by BritishCo. SpainCo did not have authority to bind or negotiate on behalf of
BritishCo and it simply managed purchase orders while BritishCo made all the relevant decisions.
Under the second agreement, SpainCo was directly and actively involved in the provision of logistics, administration and
packaging services to BritishCo.
Simultaneously, within the context of the business restructuring, SpainCo sold all its stock to BritishCo.
The decision
The Supreme Court takes the view that a comprehensive analysis of the structure and the behaviour of the parties as a whole
supports the conclusion that a “complex business set up” in Spain was “at the disposal” of BritishCo, and that a core part of its
distribution activities in Spain – i.e. not preparatory or ancillary activities – are conducted therein, thus creating a Spanish PE
under the “fixed place of business clause”.

Other cases (II)

Dell case – On 8 June 2015, the Spanish National Court (Audiencia Nacional) issued a decision where it upheld that a Spanish
entity belonging to an international group constitutes a PE of an Irish entity of the group under both the “fixed place of business”
and the “dependent agent” clauses of the Spain-Ireland tax treaty (the treaty).
The decision has been confirmed on 20 June 2016 by the Supreme Court.
This judicial pronouncement is of special interest in the interpretation of the “fixed place of business” and “dependent agent”
clauses, as it follows the trend set by the Spanish Supreme Court which upheld in past cases the Spanish tax authorities’
functional approach with regard to post-restructuring schemes and commissionaire dealings involving complex business
structures in Spain.
Background
SpainCo is part of a multinational group (MNG) that manufactures products outside Spain, with an entity of the group,
IrelandCo, operating as distributor for most of Europe. IrelandCo has appointed related entities that operate as its
commissionaires in several countries; SpainCo and FranceCo are part of this commissionaire network.
The MNG operates through a direct sales model so that purchase orders are placed in a web page or call centre.
Prior to the restructuring, SpainCo operated as a full-fledged distributor. In the post-restructuring scenario, SpainCo serves
medium-sized and large customers of the group, through a commissionaire agreement with IrelandCo. In many cases, large
customers require specialized attention and SpainCo’s client support personnel are available to serve them.
Sales to small Spanish customers are made by FranceCo, through a call centre and a web page.
The decision
The Supreme Court confirms the National Court’s decision of 8 June 2015, concluding that the activities of SpainCo constituted
a PE of IrelandCo under both the “dependent agent” and “fixed place of business” clauses of the treaty.
The Supreme Court concludes that the expression “acting on behalf of an enterprise” included in article 5.5 of the Spain-Ireland
tax treaty does not necessarily require a direct representation between the principal and the commissionaire but rather it refers
to the faculty of the commissionaire to bind the principal with the third party even when there is no legal agreement between
the latter two, which is the case under Spanish corporate law. Furthermore, the Supreme Court considers that SpainCo cannot
be deemed as an independent agent since it operated exclusively for IrelandCo under comprehensive control and instructions
from the same.
Regarding the “fixed place of business”, the Supreme Court interprets that having a place at the principal’s disposal also
includes the use of such premises through another entity which carries out the principal’s activity under its supervision. In other
words, it considers that having a place at IrelandCo’s disposal is linked to the performance of its business activity therein,
regardless of whether such activity is carried out by its own employees or by SpainCo through its own premises and personnel.
9.6. Conversion of full-fledged distributor into commissionaire or low-risk

distributor
Such restructuring should ensure that the risks, functions and assets are properly assigned to the parties involved. Such
analysis should be carried out following the OECD Transfer Pricing Guidelines. Spain has no specific regulations on business
restructuring transactions. However, again, the principle of substance over form will rule the analysis of this transaction by the
Spanish tax authorities. In other words, the transaction must be supported by economic and business reasons. This issue is
always addressed on a case-by-case basis.
Due to lack of practical experience and specific regulations, the case study has been omitted in this chapter.
9.7. Conversion of full-fledged manufacturer into toll or contract

manufacturer
In such a restructuring, it is clear that a considerable set of assets, functions and risks should be transferred to Company B.
Company B should then remunerate, at arm’s length, Company A for all these assets, functions and risks. Again, such analysis
should be made under the OECD Transfer Pricing Guidelines, since the Spanish legislation does not specifically address the
transfer pricing issues of business restructurings.

9.8. Centralization of intangible property rights

The Spanish legislation does not address any specific issue regarding the centralization of intangible property. In this case, the
general rules would apply.
Therefore, the transfer of the IP rights should be made along with the real transfer of the research and development’s assets,
risks and functions to the company centralizing the IP rights. Otherwise, the transferring company should be duly remunerated
for its R&D functions.
Spanish tax authorities would analyse the existence or not of sound economic reasons for undertaking such a restructuring.
9.9. Location savings

The location of an activity in one country or another is one of the key decisions that multinational enterprises must make as part
efficient tax planning. Spanish transfer pricing rules play a significant role when relocating activities to other jurisdictions, as
these transactions are carried out between related parties and are especially complex, as they usually trigger the transfer of
an entire business, which may include items such as tangible and intangible assets, know-how, finished products, credits and
rights. This would trigger an in-depth analysis regarding the valuation of (1) tangible and intangible (e.g. R&D rights and know-
how) assets and (2) the entire business. These transactions must be carried out on an arm’s length basis, and any valuation
method that helps to demonstrate this would be accepted by the tax authorities.
9.10. Losses
The LIS does not contain any provisions regarding losses from a transfer pricing perspective. It only contains rules regarding
the carry-forward of tax losses. Thus, these situations must be analysed on a case-by-case basis.
9.11. Market penetration

Market penetration is often associated with start-up losses. Where a company launches its activities and makes investments
to penetrate a market, typically there are some start-up losses. The possibility of lower results in this context is recognized by
the OECD in paragraphs 1.115 to 1.118 of the OECD Transfer Pricing Guidelines. Although there have been no administrative
decisions or case law in this regard, it is expected that the tax authorities should accept the effects of a lower remuneration
deriving from market penetration issues.
9.12. Blocked payments

No special rules exist in this regard.
9.13. Set-offs
Intentional set-offs occur when a multinational enterprise provides a benefit to an associated enterprise within the group that is
deliberately balanced to some degree by different benefits received by that enterprise in return. See paragraphs 3.13 to 3.17 of
the OECD Transfer Pricing Guidelines.
There are no special rules in this regard and the Spanish tax authorities have not issued any relevant guidance to this respect.
In principle, as long as the set-off stems from arm’s length-valued transactions, no consequences should arise.
10. Tax Treatment of Intra-Company Dealings
See also Article 7: Business Profits – Global Tax Treaty Commentaries section 4.2.4.
10.1. General principles on attribution of profit to a permanent

establishment
In transactions between a foreign PE and its head office in Spain, the tax base of the head office shall include the estimated
income deriving from internal transactions with the PE assessed at the market value, provided the applicable tax treaty states

so. Moreover, article 18(3) of the NRITL provides that transactions between a non-resident company and its Spanish PE must
follow the provisions of article 18 of the LIS. Thus, the independent and separate principle applies.
Article 16 of the NRITL provides for a list of items of income that should be attributed to a PE, although in a tax treaty context
the OECD Transfer Pricing Guidelines should be followed.
The items of income attributed to a PE:
- income from business activities carried out by the PE;

- income from assets attached to the PE; and
- gains and losses from the transfers of assets attached to the PE.
Only those assets functionally linked to the activity of the PE are regarded as “assets attached to the PE”. In this sense, if an
asset is no longer functionally linked to a PE, its income or gains/losses would be attributed to the PE during the subsequent 3
years.
However, domestic law may not be fully applicable in a treaty context.
10.2. Allocation of assets and risks to a permanent establishment

The allocation of assets, risks and functions to a PE must follow the same rules as those applicable to separate entities.
As a general rule, all assets functionally attached to the main activity of the Spanish PE will be assigned to such PE.
The assignment of shares in other entities to the PE is only possible if (i) the PE is registered as a branch with the Commercial
Registry, (ii) the shares are functionally attached to the main activity of the branch, and (iii) the shares are recorded in the
financial statements of the branch.
10.3. Use of tangible assets

Transfers of assets between a non-resident company and its Spanish PE, and vice versa, are subject to the general transfer
pricing rules and therefore must be valued under article 18 of the LIS. In this sense, it must be mentioned that the OECD 2010
Report on the Attribution of Profits to Permanent Establishments, in the same way as the 2008 version of such report, is used
by the Spanish tax authorities as guidance in this matter. There are no differences between the domestic tax treatment and the
treatment stemming from the Report.
Article 18(1)(a) of the NRITL provides for the non-deductibility of payments made by a PE to its head office, or another of its
PEs, for the use of or the transfer of capital assets or rights. Nevertheless, depreciation of these assets is tax deductible in
the hands of the PE. This provision is not applicable if the applicable tax treaty provides for the tax deductibility of expenses
attributed to the PE for the internal transactions with the foreign head office. In turn, the correlative income for the foreign head
office is regarded for the purposes of the non-resident income tax as Spanish-source income obtained through no PE.
Assets transferred by a PE to a head office must be regarded as functional assets for the PE. As a general rule, such
transactions are deemed to constitute a taxable event. Under article 16(2) of the NRITL, with regard to assets of a PE which
are re-exported and which have been previously imported, the following rules are applicable:
- there is no capital gain or loss, disregarding the treatment applicable to payments made for the period of use, in the case of
fixed inventory temporarily imported;
- there is a capital gain or loss with regard to fixed inventory attached to the business activities of the PE; and
- there are profits arising from the economic activities if the assets are regarded as inventory.
10.4. Intangible property

Under article 18(1)(a) of the NRITL, no deduction is allowed for payments made by a Spanish PE to its head office (or to
another PE) for the use of intangible assets. This rule has the purpose of disallowing the deductibility of payments made
within the same legal entity, while also avoiding the taxation of the head office for granting the use of an asset or right to a
Spanish PE. Nonetheless, as mentioned before, this provision is not applicable if the applicable tax treaty provides for the tax
deductibility of expenses attributed to the PE for the internal transactions with the foreign head office. The correlative income

for the foreign head office is regarded for the purposes of the non-resident income tax as Spanish-source income obtained
through no PE.
The concept of “fiscal ownership”, introduced in the OECD 2010 Report on the Attribution of Profits to Permanent
Establishments, could be used in Spain to attribute part of the cost of the development of an intangible to a PE, part of the
amortization of the intangible or, if acquired from a third party, part of the utility obtained by the PE when integrating an
intangible asset in its own production process.
10.5. Internal services

As mentioned in section 10.4., no deduction is allowed for payments made by a Spanish PE to its head office for the provision
of technical assistance (e.g. services). However, the cost of these services must be allocated to the PE at arm’s length.
10.6. Cost contribution arrangements

As mentioned, the OECD 2010 Report on the Attribution of Profits to Permanent Establishments provides for a method to
allocate part of the costs or benefits to a PE, under the so-called “fiscal ownership of the intangible” that splits the ownership of
an asset of the same legal person into the headquarter and the PE.
A PE should bear the relevant costs related to a CCA in accordance with the general LIS criteria, although they would not be
tax deductible in Spain.
See section 7.
10.7. Financing and interest payments

Under article 18(1)(a) of the NRITL, no deduction is allowed for interest payments made by a Spanish PE to its head office,
except when paid by the PEs of foreign banks to the head office or to other PEs in the context of their business activities (i.e.
financial activities). Also for interest, article 18(1)(a) does not apply if the applicable tax treaty provides for the tax deductibility
of expenses attributed to the PE for the internal transactions with the foreign head office. The correlative income for the foreign
head office is regarded for the purposes of the non-resident income tax as Spanish-source income obtained through no PE.
A loan granted by the head office to the PE would only be regarded as such when such loan stems from external financing.
Loans granted by the head office using its own funds should be regarded as capital allocations.
Loans must be attached to the PE when linked to the PE’s business activities.
10.8. Foreign permanent establishment of a resident taxpayer

Foreign PEs are treated as a separate entity for transfer pricing purposes, in accordance with article 18(8) of the LIS, the
OECD Transfer Pricing Guidelines and the OECD 2010 Report on the Attribution of Profits to Permanent Establishments.
In accordance with article 22 of the LIS, income obtained by Spanish tax resident companies from foreign PEs would be
exempt if certain requirements were met. Otherwise, the taxation borne by the PE in the source state would benefit from the
internal double tax relief in the hands of the Spanish tax resident company, with certain limitations.
Certain tax treaties may provide for the exemption method for income from foreign PEs.
10.9. Specific industries

There are no specific transfer pricing rules addressed to PEs of specific industrial sectors.
11. Specific Treatment of Transactions in Certain Sectors

11.1. E-commerce
Although there is no relevant case law concerning e-commerce, it must be mentioned that Spain follows the OECD Transfer
Pricing Guidelines and the OECD Model.
There are no specific provisions with respect to e-commerce. However, a digital service tax is being processed in the Spanish
parliament. The bill is still not approved but it proposes to tax certain digital services, such as digital advertising, services

consisting in making available multi-sided digital interfaces to users which allow users to find others and to interact with them,
and also the transmission of data, at a rate of 3%.
11.2. Pharmaceutical sector

The pharmaceutical sector is an industrial sector in which high-volume intra-group transactions take place, given the R&D
activities carried out by these groups; when one of the companies belonging to a pharmaceutical group discovers an active
ingredient, the active ingredient is often subsequently sold to related companies.
The tax authorities have been commencing tax audits in order to analyse whether the transfer prices charged by non-resident
entities to their Spanish subsidiaries are in line with the arm’s length principle. These tax audits focus on an analysis of the
transfer pricing rules previously in force, under which the tax authorities were entitled under the LIS to unilaterally make
adjustments to agreed consideration in this type of transaction, when the effect of the transaction was a reduction or deferral of
the Spanish tax liability of Spanish companies.
Some transfer pricing issues arose in the pharmaceutical sector and have been clarified by several court decisions. In
particular, one of the crucial issues was the equivalence between the prices of active ingredients sold under a trademark and
the prices of active ingredients without any trademark (so-called generics). In this regard, the TEAC, in its decision of 9 October
1997, concluded that these prices were equivalent. However, the TEAC, in its decision of 20 January 1999, held that these
prices must be determined taking into consideration several factors, including the purity of the drugs, the R&D costs attached
thereto and any market penetration costs borne. Therefore, transfer prices may differ depending on several circumstances.
This last TEAC decision was ultimately accepted by the Madrid Superior Court of Justice (Tribunal Superior de Justicia de
Madrid) in its decision of 26 January 2006.
However, the Supreme Court (Tribunal Supremo) accepted the rationale of the TEAC decision of 9 October 1997. Therefore,
prices given to generic active ingredients must be valid for comparability purposes, regardless of whether they are attached to a
trademark. These prices are the prices that the tax authorities will regard as at arm’s length, although the taxpayer is entitled to
prove the existence of circumstances (e.g. different degrees of purity) that cause this price variance.
11.3. Global trading

Global trading companies are subject to the general corporate income tax regime in Spain.
See National Court, 16 July 2015 and 11 June 2015 in relation to the valuation methods (CUP, resale price method and TNMM)
suitable in commodity transactions.
11.4. Insurance
Apart from the specific tax provisions concerning insurance companies, there are no specific transfer pricing rules that are
generally applicable to insurance companies. There is no case law in this respect.
11.5. Other
There are no specific rules with regard to other industries.
12. Safe Harbour

Not applicable.
13. Documentation Requirements

13.1. Purpose of Action 13 of the BEPS Action Plan
In line with the final report on BEPS Action 13, Spain has implemented the three levels of transfer pricing documentation (CbC
report, Master File and Local File).
According to the RIS, the required documentation can be classified into two categories, namely (i) documentation relating to
the group to which the taxpayer belongs and (ii) documentation relating to the taxpayer itself. Moreover, the RIS implements
an additional requirement, country-by-country reporting, inspired by the provisions contained in BEPS Action 13, which mainly
applies to controlling companies’ resident in Spain with a global turnover of more than EUR 750 million.

Specifically, new group and taxpayer documentation requirements include more detailed information on the group’s financial
structure, its value chain, and DEMPE functions in relation to intangible assets.
Despite the fact that RIS has been in effect since 1 January 2015, the provisions regarding country-by-country reporting
(contained in article 14 of the RIS), as well as the group and taxpayer documentation requirements (contained in articles 15 and
16 of the RIS), are effective for periods beginning on or after 1 January 2016.There is an exception for groups and taxpayers
with a turnover lower than EUR 45 million, wherein simplified requirements are applicable.
The CbC reporting requirements under BEPS Action 13 form one of the four BEPS minimum standards. Each of these
minimum standards is subject to peer review in order to ensure timely and accurate implementation. All members of the
Inclusive Framework on BEPS,[10] including Spain, commit to implementing the Action 13 minimum standard on CbC reporting,
and to participating in the peer review.
According to the phase 1,[11] phase 2,[12] phase 3[13] and phase 4[14] annual peer review reports, Spain’s implementation of the
Action 13 minimum standard meets all applicable terms of reference, except for the following:
- It is recommended that Spain amend its legislation or otherwise clarify that the annual consolidated group revenue
threshold calculation applies in a manner consistent with the OECD guidance on currency fluctuations in respect of an
MNE Group whose Ultimate Parent Entity is located in a jurisdiction other than Spain, when local filing requirements
are applicable.
- It is recommended that Spain amend its legislation or otherwise clarify the definition of a Constituent Entity to be
included in a CbC report in a manner consistent with the terms of reference.
- It is recommended that Spain amend its legislation or otherwise clarify that local filing is only required in the
circumstances contained in the terms of reference.
13.2. CbC reporting

13.2.1. Model/template for CbC reporting available
The legislation with respect to the CbC reporting is effective as per 1 January 2016.
The information relating to the country-by-country reporting must be provided in a specific format, through form 231, in order
to comply with the requirements stated in the Administrative Order[15] of the Spanish Ministry of Finance of 6 June 2016 and
the European Council Directive of 25 May 2016. Documentation must be prepared in the Spanish language, and for tax years
beginning in 2016 onwards.
Additionally, a notification must be filed specifying the identity and the tax residence of the group entity responsible for
submitting the CbC to tax authorities. This obligation must be fulfilled before the end of the tax year to which the information
refers.
13.2.2. Which taxpayers need to do CbC reporting?

Article 13 of the RIS states that a CbC report should be submitted by tax resident entities in Spain considered as the ultimate
parent entity of a group according to article 18(2) of the LIS. Moreover, this information should also be provided by Spanish
constituent entities (of a non-resident ultimate parent entity), or the PEs, when one of the following applies:
- no CbC obligations exist in the residence country of the parent company;

- there is no automatic information exchange agreement between competent authorities with regard to this information;
10. A full list of members is available at https://www.oecd.org/tax/beps/inclusive-framework-on-beps-composition.pdf (accessed 10 Feb. 2022).

11. OECD, Country-by-Country Reporting – Compilation of Peer Review Reports (Phase 1): Inclusive Framework on BEPS: Action 13, OECD/G20 Base Erosion
and Profit Shifting Project (OECD 2018) (accessed 10 Feb. 2022).
14. OECD, Country-by-Country Reporting – Compilation of 2021 Peer Review Reports: Inclusive Framework on BEPS: Action 13, OECD/G20 Base Erosion and
Profit Shifting Project (OECD 2020) (accessed 10 Feb. 2022).
15. Boletín Oficial del estado, Num. 315, 30 Dec. 2016, available at https://www.boe.es/boe/dias/2016/12/30/pdfs/BOE-A-2016-12484.pdf (accessed 10 Feb.
2022). Modified in Boletín Oficial del estado, Num. 223, 14 Sept. 2018, available at https://www.boe.es/boe/dias/2018/09/14/pdfs/BOE-A-2018-12515.pdf
(accessed 10 Feb. 2022) and in Boletín Oficial del estado, Num. 341, 31 Dec. 2020, available at https://www.boe.es/boe/dias/2020/12/31/pdfs/BOE-
A-2020-17342.pdf (accessed 10 Feb. 2022).

- even though such an agreement on automatic exchange of information exists, there has been a systematic breach that has
been communicated by the Spanish tax authorities to the surrogate entities; unless the multinational group has designated
another entity to comply with this obligation; and
- the Spanish resident entity or PE has been appointed by its non-resident parent entity to prepare the CbC reporting. This
circumstance is in line with the “surrogate parent entity rule” established in the CbC reporting implementation package of
BEPS Action 13.
Lastly, this information shall not be required when the total turnover of the persons or entities belonging to a group is below
EUR 750 million.
13.2.3. Required contents of CbC report

The CbC report should be drafted in euro. Taxpayers may use the information from the consolidated accounts, separate
mandatory financial statements for each of the entities, mandatory financial statements for regulatory purposes or internal
management accounts to complete the CbC report.
Under article 14 of the RIS, the following information should be submitted, on an aggregate basis, for each country or
jurisdiction:
- gross income of the group, making a distinction between that obtained from transactions with related parties and that with
third parties;
- earnings before corporate income tax or other taxes of an analogous nature;
- corporate income tax or other taxes of an analogous nature paid, including withholding;
- corporate income tax or other taxes of an analogous nature due, including withholding;
- capital share and other results not distributed;
- average workforce;
- tangible assets and property investments other than credit claims, cash and banks;
- list of resident entities, including PEs and main activities performed by each one of them; and
13.2.4. Notification requirements and filing dates
Spanish resident entities belonging to a group that is required to submit a CbC report will have to notify the tax authorities of
the identity of the entity required to prepare the report before the end of the reporting period. Notification is required for financial
years starting on or after 1 January 2016. There is no specific form to notify the Spanish tax authorities. Notification should be
done electronically.
The CbC report must be filed no later than 12 months after the end of the reporting year.
13.2.5. Exchange of CbC information

Spain signed the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (MCAA CbC) on 27 January
2016. Country-by-country reports will also be exchanged due to Council Directive (EU) 2016/881 of 25 May 2016 amending
Directive 2011/16/EU [16] as regards mandatory automatic exchange of information in the field of taxation. Under the Directive,
the competent authority of the Member State that receives the CbC report shall, by automatic exchange, communicate the
report to any other Member States in which one or more constituent entities of the MNE group are either resident for tax
purposes or are subject to tax with respect to the business carried out through a PE.
As of March 2022,[17] Spain has 69 bilateral relationships (and 15 non-reciprocal agreements) in place for the exchange of CbC
reports, including those activated under the CbC MCAA, under bilateral CAAs[18] and under the EU Council Directive (2016/881/
EU).
16. Council Directive 2011/16/EU of 15 February 2011 on Administrative Cooperation in the Field of Taxation and Repealing Directive 77/799/EEC (2011), Primary
Sources IBFD.
17. For details on activated exchange relationships for country-by-country reporting, see https://www.oecd.org/tax/beps/country-by-country-exchange-
relationships.htm (accessed 7 Mar. 2022).
18. Spain signed a bilateral Competent Authority Agreement with the United States on 19 Dec. 2017.

13.2.6. Differences between and/or interpretation of issues regarding OECD and local
guidance
The CbC reporting requirements form one of the four BEPS minimum standards. Each of these minimum standards is subject
to peer review in order to ensure timely and accurate implementation. All members of the Inclusive Framework on BEPS (BEPS
IF),[19] including Spain, commit to implementing the Action 13 minimum standard on CbC reporting, and to participating in the
21
peer review. According to the first annual peer review report:
Spain meets all the terms of reference relating to the domestic legal and administrative framework, with the exception of:
- the annual consolidated revenue threshold calculation rule in respect of MNE Groups whose Ultimate Parent Entity is
located in a jurisdiction other than Spain which may deviate from the guidance issued by the OECD. Although such
deviation may be unintended, a technical reading of the provision could lead to local filing requirements inconsistent
with the Action 13 standard,
- the definition of the Constituent Entities to be included in a CbC report which appears to be incomplete; and
- the scenarios in which local filing may be required that are wider than those set out in the minimum standard.
13.2.7. Penalties in case of non-timely or incomplete or incorrect filing

The general penalty regime for incorrect or incomplete filing of transfer pricing documentation applies.
13.2.8. Specific rules for appropriate use of CbC information by the tax administration
CbC information may only be used as a risk-assessment tool. According to the audit planning for tax years 2017 and 2018,
CbC reports will be used by the Spanish tax authorities as an indicator to detect and identify transfer pricing risks and other
BEPS-related matters.
As the OECD explained in the CbC reporting handbook on effective tax risk assessment,[20] Spain uses a mainly decentralized
model of risk assessment that is carried out locally by the regional audit offices. However, the Spanish tax authorities intend to
make centralized use of the CBC report data, which will be exploited by the Large Taxpayers Office.
The first step will be undertaken by the tax authority's IT system, and will follow two complementary approaches: an issue
approach and a taxpayer approach. The issue approach calls for a general analysis of the whole census searching for specific
issues, patterns and typologies. Additionally, it will look for inconsistencies within a taxpayer’s data and also across the whole
population. The taxpayer approach will focus on the MNE that has submitted the CbC report, searching for items that relate
only to that taxpayer or a group of taxpayers.
Once the automated analysis has been conducted, a selection team will conduct a manual analysis using data obtained in
the first stage, their own expertise, and other data available to the tax authority. The first step will help make it easier for the
tax authority's small selection team to deal with all the cases but the main decision will be made at this stage analysing the
rough data from that first step and looking for false positives. If there are issues that require further inquiry, several options are
available: the tax authority can request further data from the taxpayer or representative in Spain (for instance by requesting the
Local and Master Files) or the case can be forwarded to an audit team to carry out a full or partial tax audit.
13.2.9. Specific rules for maintaining confidentiality of information reported in the CbC
report
There is no specific rule for maintaining the confidentiality of information reported in the CbC report. The general non-disclosure
provision stated in article 95 LGT would be applied.
13.2.10. Experiences in practice

Not applicable.
19. For a full list of BEPS IF members, see http://www.oecd.org/tax/beps/inclusive-framework-on-beps-composition.pdf (accessed 10 Feb. 2022).
20. OECD, Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment (OECD 2017), available at https://www.oecd.org/tax/beps/country-by-
country-reporting-handbook-on-effective-tax-risk-assessment.htm (accessed 10 Feb. 2022).

13.3. Preparation of Master File

13.3.1. Model for reporting made available
Taxpayers are required to file a Master File in Spain. Template of the Master File follows the OECD template. There is no
particular form that should be used when filing the Master File. The Master File should be prepared in Spanish.
13.3.2. Which taxpayers need to file?

A Master File should be prepared by Spanish MNEs with revenues equal to or exceeding EUR 45 million. The Master File
requirement does not apply to companies with a turnover, individually or jointly with other group companies, below EUR 45
million. The taxpayer does not have to file the Master File, but should have it available upon request of the tax authorities.
13.3.3. Required contents of filing and type of submission

This documentation includes the following:
- Information relating to the structure and organization of the group:
- general description of the organizational, legal and transactional structure of the group; and
- identification of the intra-group companies.
- Information relating to the activities of the group:
- main activities performed by the group, as well as a description of the main geographical markets in which the group
operates, main sources of profit and the supply chain of those goods and services representing at least a 10% of the
group’s turnover;
- general description of the functions performed, risks assumed and main assets used by the group entities; description of
the transfer pricing policy followed by the group that indicates compliance with the arm’s length principle; and
- details regarding any cost sharing agreements and service agreements within the group; and
- description of the operations of reorganization and acquisition or transfer of relevant assets.
- Information relating to the group’s intangibles:
- general description of the global strategy followed by the group regarding the development, ownership and exploitation
of intangible assets, including the placement of the main facilities where R&D activities are carried out;
- details regarding intangible assets of the group which are relevant to transfer pricing, as well as a general description of
the transfer pricing policy regarding those assets;
- amount of compensation and details related to related-party transactions arising from the usage of intangible assets;
- details regarding any agreements between group entities; and
- general description of any relevant transfer of intangible assets.
- Information relating to financial activity:
- general description of the group’s financing methods;

- details regarding group entities which conduct the main financial functions; and
- description of the transfer pricing policy followed by the group with reference to financing agreements between group
entities.
- Information relating to the financial and fiscal position of the group:
- annual financial statements of the group; and

- details regarding any APA or analogous procedures involving the group and the tax authorities.
These requirements are not applicable to companies with a turnover, individually or jointly with other group companies, below
EUR 45 million.

For tax years beginning in 2015, documentation relating to the group shall be required according to the provisions contained in
Royal Decree 1777/2004, of 30 July 2004.
The Master File should be prepared in the Spanish language and in euro.
13.3.4. Effective date and filing date

The Master File requirements apply for fiscal years beginning on or after 1 January 2016. The Master File should be available
to the tax authorities by the income tax return filing deadline (6 months and 25 days after the taxpayer’s fiscal year-end).
Taxpayers are not required to file their documentation, but the tax authorities may request the document after the corporate
income tax return deadline.
13.3.5. Penalties in case of non-timely filing or incomplete or incorrect filing

Taxpayers are not obliged to file the Master File. It should be available upon request of the tax authorities.
In case there is no transfer pricing adjustment, failing to provide the Master File when requested by the tax authorities might
lead to the imposition of a fixed fine of EUR 1,000 for each data and EUR 10,000 for each data set, omitted or false.
The penalty provided will have as a maximum limit the lower of the following two amounts:
- 10% of the total amount of transactions subject to income tax in the corresponding period; or
- 1% of the net amount of turnover.
Not applicable.
13.4. Preparation of Local File

13.4.1. Model for reporting available
Taxpayers are required to file a Local File in Spain. There is no model or particular template for the Local File. The Local File
should be prepared in Spanish.

Group companies with an aggregate group revenue that exceeds EUR 45 million should prepare a Local File.
Regulations allow for the preparation of a “simplified” Local File for taxpayers with an aggregate group revenue that does not
exceed EUR 45 million. A super simplified Local File may be filed by taxpayers with revenue of less than EUR 10 million. In
those cases, there is a standardized form to prepare the Local File.

This documentation includes the following:
- Information relating to the taxpayer:
- management structure, organization chart and persons or entities recipient of the reports regarding the progress of the
taxpayer’s activities;
- description of the activities conducted by the taxpayer, business strategy and its participation in asset transfer or
restructuring transactions; and
- main competitors.
- Information relating to the related transactions:
- detailed description of the nature and characteristics of the related transactions, as well as their amounts;
- name and surname or corporate name, tax domicile and tax number of the taxpayer and of related persons or entities
taking part in the transaction;
- comparability analysis under article 17 of the RIS;

- valuation methods chosen, reasons for the implementation thereof, comparables obtained and the resulting value or
range of values;
- criteria for the distribution of jointly rendered services in favour of other related parties and any services and/or cost
sharing agreements related thereto;
- copy of the existing APAs or analogous procedures involving the group and the tax authorities; and
- any other relevant information.
- Economic and financial information of the taxpayer:
- annual financial statements of the taxpayer;

- reconciliation between the data used in order to apply the transfer pricing methods and the annual financial statements,
when relevant; and
- financial data of the comparables used.
For tax years beginning 2015, documentation relating to the taxpayer itself shall be required according to the provisions
contained in Royal Decree 1777/2004, of 30 July 2004.
Despite the previous requirements, article 16(4) of the RIS lays down simplified documentation requirements with regard
to those persons or entities whose turnover, as defined in article 101 of the LIS, is below EUR 45 million. These simplified
requirements will be effective from 1 January 2015, in contrast to the country-by-country reporting and documentation relating
to the whole group and the taxpayer itself. In the simplified cases, the following documentation is required:
- description of the nature and characteristics of the related transactions, as well as their amounts;
- name and surname or corporate name, tax domicile and tax number of the taxpayer and of the related persons or entities
taking part in the transaction;
- valuation methods chosen; and
- comparables obtained and value or range of values obtained through the valuation method used.
Taxpayers with revenue of less than EUR 10 million may file a super simplified Local File. Entities with a turnover individually or
jointly with other group companies below EUR 10 million (i.e. small-sized enterprises or SMEs), as well as private individuals,
are not required to include the comparability analysis when they carry out transactions with persons or entities resident in
countries or territories not regarded as tax havens. Moreover, they shall be permitted to meet their obligations by filing a
standardized document approved by the Spanish tax authorities for the tax period starting as of 1 January 2015.

Taxpayers are obliged to prepare a Local File as per 1 January 2016. The taxpayers do not have to file the Local File but they
should provide the Local File upon request of the tax authorities.

Taxpayers are not obliged to file the Local File. It should however be available upon request of the tax authorities.
In case there is no transfer pricing adjustment, failing to provide the Master File when requested by the tax authorities might
lead to the imposition of a fixed fine of EUR 1,000 for each data and EUR 10,000 for each data set, omitted or false.
The penalty provided will have as a maximum limit the lower of the following two amounts:
- 10% of the total amount of transactions subject to income tax in the corresponding period; or
- 1% of the net amount of turnover.
Not applicable.
13.5. Still valid pre-BEPS domestic TP documentation rules

Not applicable.

13.5.1. Model or template for reporting available

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.
13.6. Other transfer pricing returns or forms

13.6.1. General
Ministerial Order 816/2017 approves form 232, which is an informative declaration about related-party transactions,
transactions with related parties in case the special regime for certain intangible assets applies and transactions related to
countries considered tax havens.
Until tax year 2015, this information had to be included in corporate income tax returns. However, from tax years beginning 1
January 2016, this information should be provided through form 232.[21]

Form 232 must be completed and filed by corporate income taxpayers and non-resident income taxpayers with a PE in Spain,
and by foreign entities present in Spain and subject to the pass-through regime. This Form should be filed by the following
taxpayers:
- Taxpayers who have carried out transactions in the tax period with the same related person or entity, provided that the
amount of all the operations exceeds EUR 250,000, according to market value.
- Taxpayers who have carried out transactions in the tax period with the same related person or entity, which are of the same
type, using the same valuation method and provided that the total amount exceeds EUR 100,000 of the market value;
- Taxpayers who have carried out specific transactions, in respect with the other operations, provided that the amount
exceeds EUR 100,000. Specific transactions are transactions involving real estate; transactions involving intangible assets;
business transfers; transfers of shares not traded on regulated markets or admitted to trading on regulated markets located
in tax havens; transactions carried out between personal income taxpayers in the pursuit of an economic activity assessed
according to the objective assessment method and entities in which such taxpayers or their spouses, ascendants or
descendants hold at least a 25% stake.
- Transactions with related persons or entities when the revenues from certain intangible assets are reduced under the patent
box regime (article 23 of the LIS).
Regardless of whether the set of operations is carried out with the same person or with a related entity, there will also be an
obligation to report on those transactions of the same nature and method used, when the total amount of the same is greater
than 50% of the turnover of the entity.
21. See Annex, Boletín Oficial del estado, No. 208, 30 Aug. 2017, available at https://www.boe.es/boe/dias/2017/08/30/pdfs/BOE-A-2017-10042.pdf (accessed 10
Feb. 2022).

Form 232 must also be filed, and the information on transactions and scenarios relating to countries or territories considered
tax havens submitted, by entities that have carried out transactions with such tax jurisdictions during the tax period or by
entities which own securities connected with such jurisdictions that were held at the close date of the period for which the return
is filed.
13.6.3. Required contents

- TIN number;
- individual or company;
- identification of the person or related party;
- type of relation;
- tax residence of the related party;
- description of the transaction;
- income or payment;
- valuation method; and
- transaction amount, excluding VAT.
The deadline for filing Form 232 is on the 11th month after the end of the tax year to which the information refers. From tax year
2020 the deadline to file Form 232 is 30 November 2021.

Not applicable.

Not applicable.
14. Compliance
14.1. Main features and jurisdiction of tax authorities
The federal tax authorities (Agencia Estatal de la Administración Tributaria, AEAT) are responsible for the effective application
of the tax system on behalf of the government. The AEAT is an organization with its own legal personality and is attached to
the Ministry of Finance, under Royal Decree 1330/2000 of 7 July 2000. Hierarchically, immediately under the President is the
General Director, who is appointed by the Spanish government, and beneath them are the seven directors who are responsible
for the seven departments into which the AEAT is divided, namely:
- the Tax Management Department;

- the Tax and Finance Inspection Department;
- the Collection Department;
- the Customs and Special Taxes Department;
- the Tax Technology Department;
- the Human Resources and Economic Administration Department; and
- the Organization, Planning and Institutional Relations Department.
One of the significant powers of the AEAT is the authority to establish the necessary mechanisms of coordination and
collaboration with EU institutions, the tax authorities of other EU Member States, as well as any other tax administrative bodies
on both a national and local level, that may be necessary for the proper management of the Spanish tax and customs system.

The Spanish tax authorities have set up a special unit to, among other functions, support the tax audit teams with international
tax matters such as transfer pricing and APAs. The unit is in place from 1 January 2013, and is known as Oficina Nacional de
Fiscalidad Internacional.
14.2. Position of taxpayers

14.2.1. Obligation to provide information
The obligation to provide information is generally established under article 18(3) of the LIS, which will be elaborated upon by
the RIS. This means that at least the documentation requirements must be complied with.
Furthermore, the obligation to provide information to the tax authorities is established in article 93 of the LGT and extends
to any person, natural or legal, public or private, that has tax-relevant information because of its economic, professional or
financial relationship with other persons. A 16 May 1990 decision of the National Court (Audiencia Nacional) interpreted “tax-
relevant information” to mean any information that can, directly or indirectly, assist the tax authorities in determining whether
a party has satisfied the obligation under article 31.1 of the Constitution to sustain public expenses based on that person’s
economic capacity. The obligation to provide information also extends to public entities, authorities, chambers of commerce and
corporations, professional bar associations, political parties, banks, etc.
The obligation to provide information, generally, must be complied with by:
- fulfilling obligations established under the general tax laws, such as the filing of VAT returns and withholding returns on
salaries, income from capital and investment income; and
- responding to personal requests made by a tax inspector.
14.2.2. Limits to the obligation to provide information
The general obligation to provide information under article 93 of the LGT is established in a very broad manner, but
nevertheless has some limits. Information may be denied to the tax authorities if it is related to:
- correspondence or other forms of confidential communication, unless a judicial ruling has been issued demanding such
information;
- the secrecy of information given to other Spanish authorities for statistical purposes only;
- the secrecy of notarial documents that refer to wills, codicils, recognition of paternity acts and marital issues, with the
exception of information about the financial condition and property of the marital estate;
- the professional secrecy related to private non-financial information that unofficial professionals may know because of their
professional activities, if the revelation of such information would violate the personal privacy or injure the reputation of the
individual;
- the obligation to keep as confidential the information that has been revealed to lawyers, consultants, attorneys, etc. as a
consequence of the nature of their services. This exception does not apply to the identity of the client, the amount paid for
the services received or any other information derived from any economic relation between a professional and his or her
client; and
- the professional confidentiality to be maintained when professionally exercising the freedom of press or the right of the
individual to receive information contained in the Constitution.
14.3. Specific instructions for tax administration

There are no special rules in this regard.
14.4. Audits and other review procedures

14.4.1. Authorities involved
Audits officials are members of the Spanish tax authority in charge of tax checking and verification procedures.

14.4.2. Primary current controversies

The existence of specialized officials within the tax authorities has increasingly deepened discussions on transfer pricing
aspects in tax audits. Tax audits now tend to encompass all types of transactions.
However, the following aspects can be identified as usual areas of discussion:
- Financial transactions, including cash pooling. The tax authorities have defended that symmetric interest rates for active
and passive positions should be applicable.
- Intercompany services. Detailed proof that services benefit the Spanish subsidiary is often required.
- Marketing intangibles and brand-building expenses. Distribution activities are a usual target of the Spanish tax authorities.
The government has approved the general guidelines on the Annual Plan for Tax and Customs Control 2022. According to the
guidelines:
- The AEAT currently deploys its activity in all these procedures within the framework of a common strategy, called a 360-
degree transfer pricing strategy that, for a specific taxpayer, interrelates the different procedures that may affect its related
operations, and its ultimate goal is to avoid controversies that may arise in this matter, ensuring tax compliance with regard
to its transfer pricing policy, so that it conforms to the principle of free competition.
- At the centre of this strategy is the new automated transfer pricing risk analysis system, based on the entire set of
information available on related-party transactions that the AEAT currently has, making effective use of both the set of
information obtained internally as well as that available to the Inspectorate as a result of the BEPS Project both in the
OECD and in the European Union.
- In 2022, the AEAT will pay special attention to compliance with the documentation and information obligations regarding
transfer prices, focusing on the substantial analysis of the valuation of functions, assets and risks contained in said
documentation.
- The areas that, due to their relative importance or tax risk, will continue to be highlighted by the AEAT in 2022 in transfer
pricing are: business restructuring, the valuation of intra-group transfers or assignments of different assets, particularly
intangibles, and the deduction of items that may significantly erode the tax base, such as royalty payments derived from the
transfer of intangibles or intra-group services or the existence of repeated losses.
- Actions of a preventive nature will also be taken aimed at guaranteeing tax bases and offering legal certainty to taxpayers.
Thus, it is planned to continue, in line with previous years, with the policy of promoting Advance Valuation Agreements both
unilaterally and, particularly, those of a bilateral and multilateral nature. With this type of action, the aim is to give certainty
to international legal-tax relations, avoiding costly inspection actions and future disputes, not only with taxpayers in court,
but also with the Administrations of other countries through the discrepancy resolution system, thus guaranteeing taxation in
accordance with the principle of free competition.
The guidelines were included in the Resolution of 26 January 2022, as gazetted on 31 January 2022. They are available in
Spanish here: https://www.boe.es/boe/dias/2022/01/31/pdfs/BOE-A-2022-1453.pdf.
14.4.3. Audit timeline

The tax audit procedure is regulated in Title 5 of the Royal Decree 1065/2007 of 27July.
The first stage is to inform the taxpayer about the beginning of the tax audit via notification.
The second stage is where audit interventions are developed with the tax authorities’ official interventions as well as a
taxpayer’s (in person or through their legal representative) appearance and participation.
Following the development stage, tax authorities’ officials sign the audit report in order to propose a tax regularization of the
taxpayer’s duties. Taxpayers are entitled to submit arguments against it.
Finally, the tax authorities’ official-chief signs the final audit report considering the taxpayer’s arguments.
14.4.4. Rights and obligations of taxpayers

Rights
The rights and obligations of the taxpayers are listed below:

- taxpayers have the right to be informed about the kind of tax authorities’ official’s interventions, its scope and the taxpayer’s
rights and obligations during the audit;
- taxpayers are entitled to act on their own behalf or through a legal representative;
- every person who participates in an administrative procedure has the right to identify the tax authorities’ officials responsible
for the audit;
- no one shall be subject to a disrespectful treatment by tax authorities’ officials;
- taxpayers have the right to preserve the confidentiality of their files, documents and other data regarding the audit delivered
to tax authorities;
- every person summoned by the tax authorities has the right to develop the less burdensome-possible intervention into an
audit;
- it is not compulsory for taxpayers to deliver documents and other files that are not legally required, nor those that the tax
authorities already possess;
- all taxpayer’s declarations shall be reported officially by means of proceeding records;
- taxpayers are entitled to apply for and receive a copy of the whole audit’s proceedings;
- every person who participates in an administrative procedure has the right to be informed about its development;
- taxpayers are entitled to submit arguments and documents;
- taxpayers shall ease the tax authorities’ interventions;
- taxpayers shall deliver the data and documents requested by the tax authorities;
- taxpayers shall allow the tax authorities’ officials to enter into their establishments;
- taxpayers shall attend and cooperate with the tax authorities’ interventions;
- taxpayers shall appear in person or by their legal representative where and when the tax authorities’ officials’ interventions
take place, and provide them with the documents, data and files requested for the audit’s purposes;
- taxpayers shall appear in person when the tax authorities have summoned them by means of a duly reasoned notification;
and
- taxpayers shall confirm the correctness of the data and information provided to the tax authorities.
14.4.5. Rights and obligations of tax authorities
Tax authorities are bound by the rights of the taxpayer as stated above (see section 14.4.4.). Likewise, taxpayers and those
who participate in an administrative procedure are limited by the audit official’s authority.
14.4.6. Information used in tax audits

All taxpayers are obliged to provide the tax administration with every kind of data, report, record or supporting document
relevant for taxation purposes, related to their own tax liabilities or with a third person’s tax liabilities.
Information requirements can be particular or general. The first are those which the tax administration directs to an individual
taxpayer in order to ascertain the tax due relating to a specific taxable event. The latter are those whose particular content is
established by law with the aim to collect information, mostly on a periodical and regular basis, from a certain group of persons
(such as financial institutions, employers and the like) in order to provide the tax administration with third-party knowledge that
enables it to check if the compliance by taxpayers is correct.
14.4.7. Confidentiality of information

Only minor exceptions are awarded (professional secrecy, mail secrecy, secrecy of data provided for statistical purposes,
in order to protect its accuracy, and certain deeds relating to private personal matters). Bank secrecy is not one of those
exceptions, but a specific procedure must be followed to obtain information from banks and financial institutions.

14.4.8. Right of access to information

Tax authorities may have access to any kind of information related to the subject under scrutiny in the context of the tax audit,
as defined in the Royal Decree 1065/2007 of 27 July 2007.
14.4.9. Penalties
General tax penalties are regulated by article 191 and subsequent articles of the LGT.
As a general rule, any irregularity involves withdrawal of the wrongly obtained advantage (that is, pay the amount of tax due).
Where the irregularity was committed intentionally or through negligence (not if it results from a reasonable interpretation of the
law), an administrative penalty may be imposed. Article 184 of the LGT establishes three types of tax offences: minor offences,
serious offences and very serious offences, depending on the gravity of the infringement committed by the taxpayer by using,
for example, fraudulent means, false invoices, unlawful recording on the accounting books, etc.
The following table summarizes the percentages of penalty (over the amount of tax due) applied under article 191 and
subsequent articles of the LGT:
Offence Penalty (%)
Minor 50
Serious 50 – 100
Very serious 100 – 150
In accordance with article 187 of the LGT, the minimum percentage of penalty in serious and very serious offences is increased
from 5% to 25% if the taxpayer has been sanctioned for a tax offence of the same nature in the last 4 years before; or, from
10% to 25%, if there is a special economic damage to the tax administration regarding the penalty’s settlement basis and the
amount of the tax payable.
If the taxpayer agrees with the tax assessment proposed by the tax authorities, the penalty will be reduced in 30%. Additionally,
in this case, if the taxpayer does not appeal against the assessment nor the penalty, and provided that it is immediately paid,
the reduced penalty shall be reduced again by an additional 25%.
The non-fulfilment of procedural obligations, such as registration, providing the tax identification number (NIF) in transactions
with third parties, failure to meet accounting requirements, the submission of information to the tax authorities and similar
requirements, can be subject to a fixed fine of from EUR 100 to 20,000 or to fines consisting of a percentage applied to different
amounts, such as the omitted or incorrect amount in the accounting records or the taxpayer’s turnover. The reporting of false
information to obtain a NIF is a grave offence subject to a fixed fine of EUR 30,000.
Improper claims for reductions in taxable income or for the carryover of losses are subject to a penalty of 15% of the unduly
claimed amounts, and improper claims for tax credits to a penalty of 50% of the unduly applied tax credits. These two penalties
are considered to be on account of the penalty that can be imposed for the underpayment of tax, provided the underpayment
occurred before the penalty on the excess tax deduction or credits was imposed. Uniones Temporales de Empresas and
Agrupaciones de Interés Económico are subject to specific penalties if they fail to allocate income or credits to their members
or partners.
14.4.10. Burden of proof

The taxpayer bears the burden of proof, under article 105 of the Spanish General Tax Law.
14.4.11. Statute of limitations

According to article 66 of the LGT, the general statute of limitations period is 4 years with regard to:
- the right to audit tax returns or assess tax liabilities. The term is measured from the original deadline to submit the tax
return;
- the right to collect tax dues. The term is measured from the deadline for payment;
- the right to impose penalties. The term is measured from the time when the infringement was committed; and
- the right to claim tax refunds, the refund of any undue tax paid, or the compensation equal to the costs resulting from
the constitution and maintenance of a guarantee when an assessment appealed is revoked. The term is measured from

the deadline prescribed to submit the tax declaration, the time of the undue payment, or the time of the revocation of the
appealed assessment, respectively.
Under article 68 of the LGT, the statute of limitation period may be interrupted by any action of the tax authorities taken with
the formal awareness of the taxpayer addressed to enable the identification, checking, inspection, assessment or collection of
the tax liability, or by any action of the taxpayer designed to enable payment of the tax, appeal against an assessment or the
obtaining of a refund. Computation of the 4-year period will resume from the date of termination of any such action.
14.4.12. Other review procedures

The Spanish tax authorities have participated in the OECD International Compliance Assurance Programme (ICAP) pilot.
At this stage, there is no legislation covering this type of procedure and therefore the legal effects of the programme are limited.
Currently, the LGT does not have any provisions allowing to exclude a company from tax audit procedures or minimizing its
obligations because of voluntary revision processes. This creates difficulties for the Spanish authorities to define the scope of
the revision and the final document to be issued.
Despite these difficulties, the Spanish tax authorities are active in this type of initiatives in the context of the OECD as a path
towards a more collaborative approach with the taxpayers.
14.5. Adjustments
14.5.1. Primary adjustment
Article 18 of the LIS provides for the application of both primary and secondary adjustments.
Once it can be determined that a transaction between related parties has not been valued in compliance with the arm’s length
principle, an adjustment must be made by the taxpayer or by the tax authorities. This will affect all the related companies
involved in the controlled transaction – the so-called bilateral adjustment.
14.5.2. Corresponding adjustment

See section 16.1.2.
14.5.3. Secondary adjustment

The wording of article 18 of the LIS also requires a secondary adjustment to be made, which implies a reclassification
of income based on the true nature of the controlled transaction. In this regard, under article 18(11) of the LIS, when the
relationship is between an entity and its shareholders or participants, the adjustment is made in proportion to the stake each of
the latter has in the company.
Until 31 December 2014, the regulation of the secondary adjustment was only included in the RIS. However, on 27 May 2014,
the Supreme Court considered those provisions as void, as they had no inclusion in the LIS. Now, Law 27/2014 has solved this
conflict, incorporating the secondary adjustment rule in the LIS.
In particular, according to article 18(11) of the LIS, the difference is regarded as follows:
- if the difference favours the shareholder or participant, the difference will be treated as a dividend or as a right to participate
in the profits of the entity, for an amount relating to the stakes held; or
- if the difference benefits the entity, the difference will be treated as a capital contribution.
When the adjustment is not made in proportion to the stake, the difference is regarded as:
- a return on the company’s equity and as remuneration for the condition of shareholder; or
- taxable income for the company and as a gift to the shareholder.
Such a secondary adjustment is applicable only to transactions between shareholders or participants and the entities in which
they have a stake, but not other transactions between related parties. Such differences will be iuris tantum presumptions, since
they can be altered if the taxpayer proves that they are not applicable.
Rather than paying a dividend outright, in practice, associated entities may seek to reach the same result and avoid double
taxation through transfer pricing. For example, if a transaction between an entity and its shareholders involves a sale of goods
or performance of services by the shareholders to the entity at a price higher than the fair market value, or a purchase at a

lower price, a disguised dividend distribution will have taken place. In this scenario, a secondary adjustment would have to be
made and the difference benefiting the shareholder would be recharacterized as a dividend distribution for tax purposes.
When an entity sells goods or renders services to a shareholder for a price higher than the fair market value, or buys goods or
receives services from the shareholder for a lower price, and the parties are related (according to the law and jurisprudence), a
disguised capital contribution has taken place. This is the opposite situation to the disguised dividend distribution. A disguised
capital contribution consists of a transfer of wealth from a shareholder to the entity, based on the existing corporate relationship,
which implies an increase of the net worth of such entity, through either an increase in assets or a decrease of liabilities.
This category of transactions finds support in EEC Council Directive 69/335/EEC, dated 17 July 1969, on Direct Taxation
of Concentration of Capital. Under this Directive, the following transactions may be taxed as capital contributions: transfers
of profits between entities controlled by the same shareholder when the circumstances show that they are intended to be a
payment of the shareholder to one of the entities through the other one (Court of Justice of the European Union (ECJ), 13
October 1992, C-49/1991); the cancellation of a debt of the entity with the shareholder (ECJ, 5 February 1991, C-15/1989); and
an interest-free loan from the shareholder to the entity (ECJ, 5 February 1991, C-249/1989; 26 September 1996, C-287/1984).
Under these rules, this type of transaction between a shareholder and the entity must be taxed solely as a capital contribution;
no other additional tax may be imposed on the transaction. No Spanish case law exists in this regard, but the wording of article
18 of the LIS expressly supports this position. Accordingly, a secondary adjustment should be made with regard to this kind of
transaction that is treated as a capital contribution for Spanish tax purposes.
Furthermore, Law 27/2014 has established the possibility of avoiding the secondary adjustment when the involved parties
make an economic restitution. This provision was supposed to be further developed in the RIS in order to be applicable.
However, the only clarification refers to the need to justify the restitution before the tax settlement resulting from the secondary
adjustment is issued.
14.6. Use of secret comparables

Although the tax authorities may use all means and information available to them, it is understood that they should not use
secret comparables. Thus, secret comparables are not used by the tax authorities (resolution of the Administrative-Economic
Court of 3 October 2013).
15. Litigation
Appeal for reversal
From 1 January 2015, there is no longer the alternative to ask for an expert’s valuation when the tax administration checks the
market value. Hence, when the taxpayer does not agree with the audit’s final report, the only possibility is to bring an action
against it.
Under articles 222 to 225 of the LGT, taxpayers who have not agreed with the audit’s final report can submit an Appeal for
Reversal to the same tax authority that has signed the audit’s report appealed. It is a facultative appeal prior to the appeals filed
before the Administrative-Economic Court.
The time limit to submit the appeal is 1 month from the date of notification of the audit’s final report.
The resolutions shall not be prejudicial to the taxpayer and can be appealed to the Administrative-Economic Court.
Regional Economic-Administrative Court appeal

Under articles 234 to 244 of the LGT, taxpayers who are against the Appeal for Reversal resolution, as well as those that have
not agreed with the audit’s final report, can submit an appeal to the Regional Economic-Administrative Court.
The time limit to submit the appeal is 1 month from the date of notification of the audit’s final report or the date of notification of
Appeal for Reversal resolution.
Central Economic-Administrative Court appeal

In accordance with articles 241 to 244 of the LGT, the Regional Economic-Administrative Court resolution can be appealed
before the Central Economic-Administrative Court during the month following the date of its notification.

The resolution of this appeal can be appealed to the Contentious-Administrative Court. The time limit in this case is 2 months
from the date of its notification.
16. Tax Treaty Aspects

16.1. Standard provisions in conformity with article 9 of the OECD Model/UN
Model
16.1.1. General approach
All of the tax treaties which Spain concluded contain a provision concerning the taxation of associated enterprises, except
the treaties with Bulgaria and the former USSR, which in no way mention this subject. However, the situation with Bulgaria
was resolved by article 4 of the Protocol to the Spain-Bulgaria treaty, which provides that “each contracting state will apply its
domestic transfer pricing regulations. Any controversy that may arise in this regard will be resolved through a mutual agreement
procedure”.
The concept of associated enterprises contained in Spanish tax treaties is identical to article 9(1) of the OECD, which provides
that two enterprises resident in different states are deemed to be associated when:
- one of them participates, directly or indirectly, in the management or control of capital of the other; or
- the same persons participate, directly or indirectly, in the management or control of capital of both enterprises.
This provision establishes the arm’s length principle as the criterion for determining the business profits of each associated
enterprise involved in an international controlled transaction, as well as for assessing the proper tax in the jurisdiction where the
income was obtained, in order to avoid international double taxation.
Although no minimum participation is specified in article 9(1) of the OECD Model to consider two enterprises as associated
(such that one would think the provision has a broader scope than that established under domestic law), interpretation of treaty
provisions must be based precisely on the domestic law and jurisprudence (under which 25% is generally considered the
minimum participation threshold necessary to regard two entities as being associated).
This provision in Spanish tax treaties allows the tax authorities to revise the accounting books of Spanish enterprises in
order to calculate their tax liability when an enterprise is deemed to be associated with a non-resident enterprise (under the
above-mentioned rule) and its taxable profits arising in Spain have been artificially altered as a consequence of the special
relationship between the enterprises. Nevertheless, the OECD Model, and therefore Spanish treaties, do not include any
criteria for determining the taxable business income of the enterprises; they merely provide for the allocation of taxing power
between the contracting states. Because no express valuation method is provided under any Spanish tax treaty, the above-
mentioned methods under domestic law will apply.
Finally, Spain has granted full freedom to two countries to make primary adjustments to international transfer pricing, namely
Australia and the United States. The treaty with the United States contains a so-called saving clause, while the treaty with
Australia introduces an ad hoc clause. Therefore, when calculating this primary or unilateral adjustment, these two countries
will be able to apply their domestic principles, irrespective of their infringement on the arm’s length principle (as interpreted by
Spain and the OECD), which constitutes a binding interpretation of the tax treaties.
16.1.2. Corresponding adjustment provisions

The corresponding adjustment provision contained in article 9(2) of the OECD Model has not been included in all Spanish tax
treaties, despite the fact that no reservation was made by the Spanish tax authorities for such a provision. Only the tax treaties
with the following countries contain a corresponding adjustment provision under which one of the contracting states must
make an appropriate adjustment so as to relieve double taxation in situations where the other state has adjusted a transaction
between associated enterprises and taxed profits that may have been taxed in the first state: Algeria, Argentina, Australia,
Canada, Croatia, the Czech Republic, Denmark, Estonia, Ireland, Macedonia, New Zealand, the Philippines, Poland, Portugal,
Romania, Russia, the Slovak Republic, Sweden, the United Arab Emirates, the United States and Vietnam. Only the treaties
with Canada, the Czech Republic, Romania and the Slovak Republic set a time limit for making such adjustments which, in
general terms, coincides with the statute of limitations established under their respective domestic law. On the other hand,
the treaties with Canada and Romania do not expressly mention the possibility that the tax authorities may consult among
themselves when determining the adjustments. However, none of the above-mentioned treaties specifies the method for
making bilateral adjustments.

Nevertheless, the comments on article 9 of the OECD Model specify that such an adjustment is not automatically to be made
in one state whenever the other state adjusts a transaction; on the other hand, the Commentaries on the OECD Model provide
that the mutual agreement procedure (MAP) is applicable to any case where transfer pricing adjustments are involved, even if
no provision comparable to article 9(2) of the OECD Model applies.
A corresponding adjustment (corresponding to a previous adjustment made by another state, in line with the arm’s length
principle) will be allowed by the first state only when it considers the adjustment made by the other state to be justified both
in principle and as to the amount. Also, such adjustments made by the contracting states with regard to the associated
enterprises must not be accounted for by the latter, as the accounting information must reflect the true picture of the business
as derived from the economic reality. The adjustments are intended to avoid double economic taxation through determining the
true tax bases, which does not affect in any way the above-mentioned economic reality (TEAC decisions, 29 January 1999 and
9 March 2000).
Spain has ratified the EU Arbitration Convention on the elimination of double taxation in connection with the adjustment of
profits of associated enterprises. This Convention specifies a procedure under which the contracting states involved in a
dispute arising as a consequence of a price adjustment must reach an agreement that eliminates double taxation for the entity
or entities the transfer prices of which have been adjusted and, therefore, grant a correlative adjustment. This Convention
entered into force on 1 January 1995. When an enterprise believes that the principles of the Arbitration Convention (article 4)
have not been respected, it may seek assistance through either a MAP or arbitration, as provided by the Convention.
Regarding the MAP, within 3 years from the time of the first notice of adjustment, the taxpayer may request assistance from
the relevant tax authorities in order to reach a satisfactory solution that avoids double taxation. If not successful, within the
next 2 years from the date of initiation of the MAP without reaching a solution, the taxpayer may request the constitution of a
consultative committee which, in a 6-month period, must resolve the double taxation problem and issue a report to be followed
and taken into account by the intervening states in order to eliminate the double taxation.
The Code of Conduct, issued by the European Council on 30 December 2009, will be taken into account in Spain when
applying the EU Arbitration Convention.
These international procedures are fully compatible with the domestic procedures of the states involved in the double taxation
controversy arising from transfer pricing issues.
16.2. Bilateral and multilateral exchange of information

All the Spanish tax treaties follow the OECD Model with regard to the exchange of information clause.
EU Directive on Mutual Assistance for the Exchange of Information

As regards EU Member States, mutual administrative assistance is governed by the EU Directive on Mutual Assistance for the
Exchange of Information (2011/16) and the EU Directive on Mutual Assistance for Recovery of Claims Relating to taxes, duties
and other measures (2010/24).
The EU Directive on Mutual Assistance for the Exchange of Information (2011/16) was subsequently amended by various
Directives, and, in particular, Directive 2018/822 of 25 May 2018 (DAC6), which provides for the automatic exchange of
potentially aggressive cross-border arrangements within the European Union, as well as between Member States and third
countries from 1 July 2020.
Reportable are cross-border arrangements that display certain characteristics (“hallmarks”) and, hence, fall within one of the
five categories (A to E) listed in Annex IV to DAC-6. In this regard, category E deals with selected transfer pricing issues and
includes the following hallmarks:
1. An arrangement which involves the use of unilateral safe harbor rules.

2. An arrangement involving the transfer of hard-to-value intangibles. The term “hard-to-value intangibles” covers
intangibles or rights in intangibles for which, at the time of their transfer between associated enterprises: (a) no reliable
comparables exist; and (b) at the time the transaction was entered into, the projections of future cash flows or income
expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly
uncertain, making it difficult to predict the level of ultimate success of the intangible at the time of the transfer.
3. An arrangement involving an intragroup cross-border transfer of functions and/or risks and/or assets, if the projected
annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or

transferors, are less than 50 % of the projected annual EBIT of such transferor or transferors if the transfer had not
been made.
On 30 December 2020, the Spanish Official Gazette published Act 10/2020, transposing the DAC6 Directive. However, by 5
March 2021, the process of transposing the DAC6 Directive has not finished yet, as there are some aspects still to be approved
(i.e. regulations of these new reporting obligations, including deadlines and other aspects regarding the forms to report those
mechanisms falling under the DAC6 Directive).
17. Dispute Resolution

17.1. Mutual agreement procedure
17.1.1. Guidance
The MAP, which may be initiated to apply the relevant corresponding adjustments, is regulated in the Regulation on the Mutual
Agreement Procedures Concerning Direct Taxation, approved by Royal Decree 1794/2008, of November 3, and which has
been modified by Royal Decree 634/2015, of July 10.
The MAP is initiated by a resident of the contracting state appealing to the tax authorities for adjustment of the taxable base.
If the residence state is willing to change the taxable base because it agrees with the arguments presented by the taxpayer, it
should immediately adjust or refund the amounts claimed. If the residence state does not agree with the criteria applied by the
other state, a MAP would be commenced by contacting the authorities of the other state.
As at 22 October 2022, of the 91 tax treaties signed by Spain to date, 47 contain a clause similar to that of article 9(2) of the
OECD Model regarding the application of corresponding adjustments,. Seven tax treaties include a clause equivalent to article
9(2) of the OECD Model, with the caution of expressly stating that they will make the adjustment only if this is justified, thereby
expressing their reservation. The remaining 15 treaties do not contain a provision that is based on or equivalent to article 9(2)
of the OECD Model Tax Convention.
The measures developed under Action 14 of the BEPS Action Plan aim to strengthen the effectiveness and efficiency of the
MAP process. They aim to minimize the risks of uncertainty and unintended double taxation by ensuring the consistent and
proper implementation of tax treaties, including the effective and timely resolution of disputes regarding their interpretation or
application through the MAP.
These measures are underpinned by a strong political commitment to the effective and timely resolution of disputes through the
MAP, and to further progress to rapidly resolve disputes.
The minimum standard will:
- ensure that treaty obligations related to the MAP are fully implemented in good faith and that MAP cases are resolved in a
timely manner;
- ensure the implementation of administrative processes that promote the prevention and timely resolution of treaty-related
disputes; and
- ensure that taxpayers can access the MAP when eligible.
The work mandated by Action 14 is divided into three main sections:
- Minimum standard
Countries should ensure that treaty obligations related to the MAP are fully implemented in good faith and that MAP cases
are resolved in a timely manner.
- Best practices
Action 14 also identifies a number of best practices related to the three general objectives of the minimum standard.
- Monitoring process
The conclusions of the work carried out on Action 14 of the BEPS Action Plan reflect the agreement that the implementation
of the minimum standard should be evaluated through a peer monitoring mechanism in order to ensure that the
commitments embodied in the minimum standard are effectively satisfied.
The Action 14 minimum standard requires members to:

- Provide timely and complete reporting of MAP statistics based on a MAP statistics reporting framework.
- Publish their MAP profiles pursuant to an agreed template.
The MAP profile for Spain can be accessed at http://www.oecd.org/tax/dispute/spain-dispute-resolution-profile.pdf.[22] The 2020
MAP statistics for Spain can be accessed at https://www.oecd.org/tax/dispute/2020-map-statistics-spain.pdf.[23]
According to the Spain peer review report (Stage 1) that was published on 12 March 2018,[24]
“Spain’s treaty network is largely consistent with the requirements of the Action 14 Minimum Standard, except mainly for the
fact that:
- One-fourth of its tax treaties neither contain a provision stating that mutual agreements shall be implemented
notwithstanding any time limits in domestic law (which is required under Article 25(2), second sentence), nor the alternative
provisions for Article 9(1) and Article 7(2) to set a time limit for making transfer pricing adjustments.
- Approximately 10% of its tax treaties do not contain the equivalent of Article 25(1) of the OECD Model Tax Convention
(OECD, 2015), whereby the majority of these treaties do not contain the equivalent of Article 25(1), first sentence, as it read
prior to the adoption of the final report on Action 14, since they do not allow taxpayers to submit a MAP request to the state
of which it is a national, where its case comes under the non-discrimination provision.
In order to be fully compliant with all four key areas of an effective dispute resolution mechanism under the Action 14 Minimum
Standard, Spain needs to amend and update a portion of its tax treaties. In this respect, Spain signed the Multilateral
Instrument, through which a number of its tax treaties will be potentially modified to fulfil the requirements under the Action 14
Minimum Standard. Where treaties will not be modified, upon entry into force and entry into effect of this Multilateral Instrument,
Spain reported that it intends to update all of its tax treaties to be compliant with the requirements under the Action 14 Minimum
Standard via bilateral negotiations.”
Royal Decree 3/2020 of 4 February 2020 was gazetted. The Decree, among other measures, amends Royal Legislative Decree
5/2004 of 5 March 2004 on income tax of non-residents by implementing Council Directive (EU) 2017/1852 on tax dispute
resolution mechanisms in the European Union. Some of the most relevant measures are the following:
- MAP is extended to tax dispute resolution mechanisms with other EU Member States derived from international tax
agreements and conventions on the elimination of double taxation on income and capital.
- The non-accrual of interest during the MAP procedure is removed.
- Treatment of penalties in procedures initiated under the Arbitration Convention (90/436/EEC) is introduced.
- The Central Administrative Tribunal (TEAC) will be competent for the functions regarding the set-up and functioning of the
Advisory Commission that will be regulated.
Furthermore, on 23 December 2019, the Ministry of Finance launched a public consultation on the draft Royal Decree
proposing amendments to Royal Decree 1794/2008, of 3 November 2008, which regulates and develops the MAPs.
On 22 October 2020, the Stage 2 peer review report of Spain was published.[25] Spain worked to address the deficiencies
identified in the Stage 1 report. This progress was monitored in stage 2 of the process. In this respect, the peer review report
notes that Spain has not yet solved any of the identified deficiencies.
In June 2021, the Spanish goverment issued Royal Decree 399/2021, further amending MAP procedures. The most relevant
change is the implementation of the tax dispute resolution mechanisms of the Directive (new Title IV of the regulations). In
particular:
- extending the scope of the regulations to dispute resolution mechanisms between EU Member States when those disputes
arise from the interpretation or application of agreements and conventions that provide for the elimination of double taxation
of income and, where applicable, capital;
- broadening the right of the taxpayer to call upon the set-up of the advisory commission when:
22. Accessed 10 Feb. 2022.

23. Accessed 10 Feb. 2022.
24. OECD, Making Dispute Resolution More Effective – MAP Peer Review Report, Spain (Stage 1): Inclusive Framework on BEPS: Action 14, OECD/G20 Base
Erosion and Profit Shifting Project (OECD 2018) (accessed 10 Feb. 2022).
25. OECD, Making Dispute Resolution More Effective - MAP Peer Review Report, Spain (Stage 2): Inclusive Framework on BEPS: Action 14, OECD/G20 Base
Erosion and Profit Shifting Project (OECD 2020) (accessed 10 Feb. 2022).

- the complaint submitted was rejected by at least one, but not all of the competent authorities of Member States
concerned, or
- the competent authorities of the Member States concerned had accepted the complaint submitted but failed to reach an
agreement on how to resolve the question in dispute by mutual agreement within the 2-year time limit;
- developing the functions of the Central Administrative Tribunal regarding the setup and functioning of the advisory
commission (competent court designated for such functions when the advisory commission is not set up within the period of
120 days from the receipt of the setup request); and
- providing that the competent authority may agree with the competent authorities of other Member States to set up an
alternative dispute resolution commission, instead of an advisory commission. The competent authority may also agree to
set up an alternative dispute resolution commission in the form of a committee that is of a permanent nature.
The regulations establish that these tax dispute resolution mechanisms are applicable to MAPs submitted as from 1 July 2019
for issues referring to income or capital related to taxable years starting 1 January 2018 (or prior taxable years if agreed with
competent authorities from other Member States concerned).
17.1.2. Competent authority

The competent authority is the Spanish General Directorate of Taxes.
17.1.3. Conditions for requesting

The conditions, terms and deadlines for initiating a MAP set forth in the Spanish regulations refer to those stated in the OECD
Model, the Guideline for the application of Mutual Agreement Procedures, the EU Arbitration Convention and the Code of
Conduct.
17.1.4. Overview of process

The process for entering into a MAP in Spain follows the OECD rules.
In this sense, the MAP is initiated by an application submitted by the taxpayer where the relevant information and
documentation concerning the grounds for the commencement of the MAP are duly justified. For transfer pricing purposes, the
documentation that must be kept under the Spanish transfer pricing regulations should be submitted.
In the subsequent 2 months, the Spanish tax authorities will analyse the background and the documentation and request for
additional information or any amendment necessary. After this 2-month period elapses, the tax authorities may decide to start,
or not, the MAP.
After the commencement of the MAP, the tax authority will be entitled for a 3-month period to request for additional information
to the taxpayer.
The Spanish tax authorities will have a period of 4 months (after the commencement of the MAP) to submit a proposal to the
foreign tax authorities. The two tax authorities shall exchange as many proposals as may be necessary to reach an agreement.
When indicated in the relevant tax treaty, a joint commission must be created.
The MAP will finish upon the withdrawal of the taxpayer or agreement between the tax authorities. There is no statutory
deadline for the conclusion of the MAP.
17.1.5. Interaction with domestic proceedings

The initiation of an MAP does not prevent the possibility of following a purely domestic appeal proceeding.
17.1.6. Time limits

See section 17.1.4.
17.1.7. Penalties and interest

Penalties and late interest are suspended during the duration of the MAP.
17.1.8. Average processing time

Average processing times are specified in the 2020 MAP statistics for Spain as under:

Cases started before 1 January 2016 Average time (in months)

Transfer pricing cases 79.75
Other cases 64.28
Cases started as from 1 January 2016 Start to end Receipt to start Start to Milestone 1 Milestone 1 to end
Transfer pricing cases 19.51 1.11 10.03 9.86
Other cases 10.59 2.81 4.85 12.61
17.1.9. Consequences of MAP with positive result for taxpayer

The execution of the MAP results has an impact on the financial year where the MAP is resolved and not in any prior year,
regardless of whether it is an open tax year or not.
17.2. Arbitration
Spain has concluded only one treaty containing an arbitration clause, namely the treaty with Chile, which was signed on 7 April
2003. Its arbitration clause has a very limited scope, applicable only with regard to the application of the General Agreement on
Trade in Services (GATS).
Here, reference must be made to the Code of Conduct for the effective implementation of the EU Arbitration Convention
(90/436/EEC of 23 July 1990).[26] The EU Arbitration Convention provides for mandatory arbitration in cases where EU Member
States cannot reach mutual agreement on the elimination of double taxation within 2 years of the date on which the case
was first submitted to one of the competent authorities of the EU Member States involved. The Convention thus improves the
conditions for cross-border activities in the internal market.
The Code of Conduct applies in cases where the tax authorities of an EU Member State increase the taxable profits of a
company arising from its cross-border intra-group transactions, for example by making a transfer pricing adjustment. The Code
of Conduct would ensure a more effective and uniform application by all EU Member States of the 1990 Arbitration Convention
(90/436/EEC) by establishing common procedures.
The proposed Code of Conduct, which also contains a recommendation to EU Member States on the suspension of tax
collection during cross-border dispute resolution procedures, would recommend that EU Member States apply its rules also
to the dispute settlement provisions in the income tax treaties concluded with each other. The Code of Conduct would be a
political commitment and would not affect the rights and obligations of the EU Member States, nor the respective spheres of
competence of the EU Member States and the community.
The Commission proposal was discussed under the Dutch Council Presidency and was adopted by the Council of Ministers in
November 2004.
Finally, the Council has also finalized a draft convention to extend the scope of the Arbitration Convention to the EU Member
States that joined the European Union on 1 May 2004.
The convention has been ratified by and is applicable to all the EU Member States.
17.3. Advance pricing agreement

17.3.1. Government agency having jurisdiction
The government agency responsible for APAs is the Central Unit of International Taxation that belongs to the Department of
Tax Audits within the Spanish Tax Agency.
17.3.2. Unilateral, bilateral, multilateral

In Spain, unilateral, bilateral and multilateral APAs can be obtained. However, the most common approach is to begin APA
processes for unilateral APAs.
Article 18(9) of the LIS provides for a procedure through which taxpayers may negotiate APAs with the Spanish tax authorities.
APAs are intended to prevent disputes between the tax authorities and taxpayers in cases involving imposed adjustments to
26. Arbitration Convention 90/436/EEC of 23 July 1990 on the Elimination of Double Taxation in Connection with the Adjustment of Profits of Associated
Enterprises (1990), Primary Sources IBFD.

the value of transactions. Therefore, APAs are a mechanism for ensuring legal certainty regarding transfer pricing between
associated entities, through a prior determination of the fair market value of the consideration for the proposed transactions.
Both resident and non-resident entities may request APAs from the tax authorities (RDGT, 23 November 1998).
17.3.3. Coverage
Corporate income taxpayers seeking an APA may submit to the tax authorities (prior to carrying out the underlying transactions)
proposals regarding:
- valuation of transactions between individuals and associated entities;

- deduction of the contributions made to R&D activities by an associated entity;
- deduction of expenses incurred for support and management services; and
- application of the thin capitalization debt-to-equity ratio.
Non-resident individuals and legal entities may also submit these proposals, as long as they plan on carrying out business
transactions in Spain through either (i) a PE located in Spain or (ii) a resident legal entity with which it will be associated in the
future.
APAs only cover the related-party transactions that the taxpayer submits to the process. Any other transactions would not be
analysed. Under the LIS, APAs may be applicable retroactively to the previous year within the statute of limitations.
In addition, it is common for the Spanish tax authorities to exclude from the APA resolution the PE exposure of the foreign
related party.
17.3.4. Process
Under the Regulations, APA applicants must submit a series of documents to the tax authorities and must follow the
established procedures. If an agreement is reached, the APA will be in force for a maximum period of 4 consecutive tax years.
Additionally, Law 27/2014 expands the APA effects, which may be rolled back to the non-prescribed tax years (and not only to
the previous tax year) provided that there is not a final settlement of the transactions under the APA. The APA will be subject to
amendment if the economic circumstances change after the APA is approved. In addition, it is possible to file a request with the
tax authorities to initiate a proceeding to submit the proposal for consideration to the tax authorities of other countries where the
remaining associated individuals and legal entities reside, as part of an effort to reach an agreement between the various tax
authorities so that the valuation will be the same for the different associated parties.


17.3.5. Fees
Taxpayers do not have to pay a fee in order to apply for an APA.
17.3.6. Timing of APA process

According to article 25(4) of the RIS, the tax authorities have a statutory 6-month period to resolve the APA application, its
modification or its extension. Where no response has been obtained from the Spanish tax authorities, it must be considered as
a denial of the APA.
17.3.7. Timeline for unilateral APA

See section 17.3.4.
17.3.8. Timeline for bilateral APA

See section 17.3.4.
17.3.9. Withdrawal
A taxpayer may withdraw its APA request whenever it is deemed convenient to do so. In such a case, all documentation
provided by the taxpayer to the tax authorities must be returned.
17.3.10. Agreement with taxpayer

Not applicable.
17.3.11. Revocation, revision, renewal

APAs may be revoked if the tax authorities conclude that the circumstances on which the APA was based have changed
significantly. However, the tax authorities would first propose that a new APA be accepted, negotiated or rejected by the
taxpayer. In turn, the taxpayer may also request a modification of the APA.
An APA may be renewed once its period of validity expires. The maximum period of validity is 4 tax years after the date of
approval.
17.3.12. Annual compliance

The corporate income tax regulations do not contain any reporting obligation concerning APAs. However, as mentioned,
significant changes in the circumstances on which the APA is based must be reported to the tax authorities since it may lead to
the inapplicability of the APA.
17.3.13. Number of APA requests and APAs concluded; timeline

According to the EU Statistics on APAs,[27] by the end of 2019, Spain had in force 80 APAs covering both EU transactions
and non-EU transactions. In 2019, it also received 64 APAs requests, approved 21, denied 3 and 7 were withdrawn by the
taxpayers.
The APA procedure has a statutory resolution period of 6 months, which is generally respected by the tax authorities. However,
the negotiation and conclusion of APAs granted in 2018 took 14.42 months in average.
17.4. Engagement with tax authorities on pricing matters outside a formal

APA process
Not applicable.
27. EU Joint Transfer Pricing Forum, Statistics on APAs in the EU at the End of 2019, available at apas_2019.docx.pdf (europa.eu) (accessed 10 Feb. 2022).

18. Interaction between Transfer Pricing and Indirect Taxes

18.1. Transfer pricing and customs valuation
18.1.1. National customs valuation
Spanish legislation on customs refers to EU regulations to determine the value of products imported. Therefore, indirect taxes
and custom duties are assessed on the basis of the value of goods for customs purposes determined in accordance with the
Union Customs Code.[28]
18.1.2. Interaction between TP and customs rules

As a general rule, the customs value is established based on the price actually paid for the imported merchandise, and must
include packaging, commissions and other expenses established in the EC Customs Code, in its regulations and in Instruction
1/2004 of 27 February 2004. The general rule may be challenged by the tax authorities if the buyer and seller are deemed to be
related parties, although this fact per se does not exclude the validity of the actual price of the transaction.
Instruction 1/2004 issued by the General Directorate of the Spanish Tax Agency provides an exclusive list of the eight cases in
which two parties will be deemed to be related for customs purposes, namely if:
- both parties have management or directors’ control over an enterprise of the other;
- the parties are legally regarded as associated;
- the parties have a relationship of employer and employee;
- one person has a participation of 5% or more in the voting rights in both the buyer and seller, whether directly or indirectly;
- one of the parties controls, directly or indirectly, the other party;
- both buyer and seller are controlled, directly or indirectly, by a third person;
- both buyer and seller jointly control, directly or indirectly, a third person; or
- the parties are members of the same family.
The tax authorities may challenge the actual price established by the parties only if the relationship between the parties has
been a deciding factor in establishing such price. The valuation of the transaction must be calculated by taking into account the
value of identical goods sold for export by the seller to unrelated parties at the same time or close to the same time.
When this method is not applicable, alternative methods are to be applied, in the following order:
- the CUP method;

- the resale price method;
- the cost-plus method; and
- any other reasonable method that follows GATT principles, particularly article VII of that agreement.
18.2. Practical impact of TP and customs adjustments

18.2.1. TP adjustments resulting in an increase in price paid by importers
Customs duties are also subject to transfer pricing adjustments under the relevant customs regulations (article 72 of the Union
Customs Code[29]). Such methods can be assimilated into the corporate income tax methods as follows:
Corporate income tax Customs
CUP method Value of identical goods, value of similar goods methods and the value based on the unit price.
Cost-plus method Computed value
28. Union Customs Code adopted on 9 October 2013 as Regulation (EU) No 952/2013 of the European Parliament and of the Council.
29. Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code (1992), Primary Sources IBFD.

In case TP adjustments result in a decrease in the price paid by importers, importers may use the value determined in the
corporate income tax procedure to claim refund of excess import VAT and customs duties paid.
Likewise, in case TP adjustments result in an increase in the price paid by importers, the customs authorities may initiate a
verification procedure to adjust the value declared in previous imports.
18.2.2. TP adjustments resulting in a decrease in price paid by importers

See sec. 18.2.1.
18.2.3. Other implications for customs due to TP adjustments

Not applicable.
18.2.4. Impact of changes in customs value on TP

There is, a priori, no interaction with the LIS transfer pricing provisions, as Spanish customs legislation provides a complete set
of valuation methods and provides for their specific circumstances/criteria related to customs valuation, although some aspects
may coincide with the LIS.
However, before 1 January 2015, the determination of a customs value had to be taken into account for corporate income
tax purposes and vice versa. Law 27/2014 has now established that the arm’s length value for the purpose of corporate
income tax, non-resident income tax and individual income tax cannot be considered to the effects of other taxes, unless the
regulations provided otherwise. Thus, the determination of a customs value cannot be directly taken into account for corporate
income tax purposes anymore. However, case law has generally recognized in other stances that the value verified by the
different branches of the tax authorities should extend its effects to other taxes.
18.3. Cooperation between competent authorities

18.3.1. Competent authorities
The AEAT has its own customs department, which has its own power to deal with tax audits. However, the AEAT is a single
administrative organization.
18.3.2. Exchange of information

Since both tax and customs is part of the AEAT, there is some level of exchange of information but there is no formal guidance
in this regard.
18.3.3. Use of APAs and tax rulings

Not applicable.
18.4. Use of TP documentation for customs purposes

There is no specific customs documentation requirement for related party transactions, so usually TP documentation is relied
upon.
18.5. Use of customs documentation for transfer pricing purposes

Generally, there is no use of customs documentation for TP purposes.
18.6. VAT or GST treatment of transfer pricing

18.6.1. Open market value or arm’s length price
The VAT rules that must be applied to transactions between related entities are stated in article 79(5) of the VAT Law (Law
37/1992, VAT Act). Under article 79(5) of the VAT Act, transactions between related parties must be valued at their fair market
value. Article 79(5) of the VAT Act deems two parties to be related for VAT purposes when:
- one of the parties involved in the transaction is subject to corporate tax, to personal income tax or to non-resident income
tax, and the rules established under the LIS define the parties as being related (e.g. parent-subsidiary transactions or
transactions between subsidiaries);

- the transaction is carried out between VAT payers and persons with whom they maintain an administrative or labour
relationship (e.g. the application of substantially reduced fees to employees);
- the transaction is carried out between VAT payers and their spouses or blood relatives within the third degree;
- the transaction is carried out between non-profit entities, as defined in article 2 of Law 49/2002, and their founders,
associates, directors, statutory representatives or their relatives within the third degree; or
- the transaction is carried out between any type of entity (non-corporate entity) carrying out business or professional
activities and its partners, members or participants. This rule refers to any kind of partnership or co-ownership carrying out
business or professional activities.
Notwithstanding the foregoing, the tax authorities may prove that two parties are related for VAT purposes by using any method
permitted by law.
The above-mentioned valuation rule is applicable only if:
- the recipient of the transaction is not entitled to fully deduct the input VAT related to the transaction and the agreed
remuneration is lower than the market value;
- the taxpayer that carries out a supply of goods or services qualifies for application of the pro rata rule and, when the
analysed transaction does not entitle the taxpayer to deduct input VAT, the agreed remuneration is lower than the market
value; or
- the taxpayer that carries out a supply of goods or services qualifies for application of the pro rata rule and, when the
analysed transaction entitles the taxpayer to a deduction for input VAT, the agreed remuneration is higher than the market
value.
In this regard, market value is defined as the price that would have been agreed between unrelated parties engaged in the
same or similar transactions on the open market. When no comparable can be found, article 79(5) of the VAT Act provides the
following guidance, with regard to:
- the supply of goods: an amount of at least the acquisition cost of same or similar goods; and
- the supply of services: the total amount of the costs of the service performed.
Article 18 of the LIS is applicable in this regard.
18.6.2. Impact of adjustments

The relevant adjustments would affect both sides of the transactions. However, in case of cross-border transactions, due to the
application of the self-invoicing rules, those bilateral adjustments would have no practical effect since it would be made with
respect of the same VAT taxpayer.
Any penalty applicable would follow the general penalties regime established in the LGT.
18.6.3. Cooperation between competent authorities

The competent authority is the Spanish tax authority, which officials (tax auditors) are competent in both corporate income tax
and value added tax. Since the Spanish tax authorities are competent in both corporate income tax and VAT, they do not need
to cooperate when a transfer pricing controversy arises in the course of a tax audit.
18.7. Case studies

18.7.1. Case study 1
Facts
Assume the following scenario. Exquisite Cosmetics is a US group. The companies in this group develop, manufacture and
distribute cosmetics. One of their products is an anti-wrinkle cream registered under the trademark Pure Magic. LocalCo
is a company resident in Spain, and a distributor of Pure Magic. LocalCo purchased Pure Magic from ForeignCo, a related
company in Country X. LocalCo furthermore distributes a product called Simply Magical, which is also an anti-wrinkle cream
and was purchased from a non-related party in Country X.

LocalCo performs the same functions in respect of Pure Magic and Simply Magical. The gross profit margins of LocalCo on
both products were 25%.
ForeignCo owns a trademark on Pure Magic. On the importation of Pure Magic, LocalCo makes a payment to ForeignCo. The
payment is specified to be 25 cents per unit. ForeignCo licensed the trademark to four unrelated licensees in Countries A, B, C
and D. The licensees of Countries A and B paid a fee of 25 cents per unit. The licensees of Country C paid 30 cents per unit.
LocalCo’s transfer pricing documentation shows that the trademark fee is based on the comparable uncontrolled price (CUP)
method.
Questions and answers
1. Based on the above facts, would the resale price method (RPM) be acceptable for transfer pricing purposes, and why? What
factors are critical in making this judgement? Would the CUP method used in the above scenario be acceptable?
The resale price method is usually accepted in Spain for distribution activities, especially when internal comparable
transactions exist (the distribution of Simply Magical). In other cases, where no internal comparable transactions are available,
the transactional net margin method is usually applied.
The potential application of the CUP method would depend on the potential differences existing between the related and
unrelated distributors. In cases where the use of trademarks is relevant, some marketing support functions may be developed
by related distributors, which may not be the case for unrelated ones.
2. If there were to be a tax audit, would the tax authorities in Spain make an adjustment? And if so, why and based on what?
No transfer pricing adjustment should be made, since both the gross margin and the licence payment can be benchmarked with
internal transactions with third parties.
3. Based on the above facts, which valuation method would be acceptable for customs purposes, and why? Which customs
method would be used, and which factors are critical in making this judgement?
According to the Instruction 4/2004, the resale price may be used to confirm the value agreed by LocalCo and ForeignCo.
4. Would the answers to the above questions be different if LocalCo were to be paid on a resale minus or a cost-plus basis?
No.
18.7.2. Case study 2

Facts
Assume the following scenario. LocalCo is resident in Spain and purchased a mixture of natural ingredients used in the
production of Pure Heaven. Pure Heaven is an organic ice cream produced by ForeignCo, a company located in Country X.
LocalCo claims it produces ice cream using only natural ingredients.
At the time the goods were cleared, LocalCo declared to the customs authorities in Spain that it (LocalCo) was related to
ForeignCo. After importation, the customs authorities in Spain decided to conduct a review of the circumstances with respect
to the sale of goods between LocalCo and ForeignCo. The customs authorities have some reservations about the price. They
made enquiries about the sale of products by ForeignCo to other buyers in Spain and, if relevant, any reasons for a difference
in price. The customs authorities forwarded the questions to ForeignCo.
The mixture of natural ingredients was acquired by ForeignCo from other manufacturers. It is neither manufactured nor
processed by ForeignCo. In Spain, LocalCo is the only person to whom the mixture of natural ingredients is sold. ForeignCo
does not sell any other goods.
There are four sellers of synthetic ingredients in Country X. These ingredients are added to ice cream for the same reason as
the mixture of natural ingredients used by LocalCo. The synthetic ingredients are acquired from other manufacturers.
LocalCo provided the customs authorities with a transfer pricing study. The cost-plus method was used. According to the
information provided by LocalCo, the profit margin on the sale of synthetic and natural ingredients is more or less the same.
The functions performed by ForeignCo and the four sellers of the synthetic ingredients are more or less the same. None of
these entities have inventories or significant assets. In addition, the risks assumed were broadly the same.
The contractual terms in transactions between the sellers and unrelated buyers are broadly the same as those between
ForeignCo and LocalCo.

In the relevant tax year, the cost-plus markup of ForeignCo in its transactions was 20%. The four sellers used the following
markups in transactions with unrelated buyers in Spain:
- Seller 1: 23%.
- Seller 2: 20%.
- Seller 3: 17%.
- Seller 4: 15%.
Questions and answers
1. Based on the above facts, would the cost-plus method be acceptable for transfer pricing purposes, and why? What factors
are critical in making this judgement?
The cost-plus method is a generally accepted method applied to the supply of raw materials and similar transactions, such
as the supply of ingredients. The application of this method and the acceptance of the profit markup will depend on the
effectiveness of the functions and risks assumed by ForeignCo.
2. If there were to be a tax audit, would the tax authorities in Spain make an adjustment?
No, assuming the functions carried out by ForeignCo are similar to those carried out by other unrelated parties supplying
ingredients.
3. Based on the above facts, which customs method would be used, and what factors are critical in making this judgement?
According to Instruction 4/2004, the cost-plus method may be used to confirm the value agreed by LocalCo and ForeignCo
4. Would it make a difference if ForeignCo were to manufacture a mixture of the natural ingredients? If so, in what way?
No. benchmark analysis should be adapted accordingly, but the cost-plus method may be acceptable.
19. Other Transfer Pricing Issues

19.1. Arm’s length value and corporate law
Articles 236 and 237 of the Capital Companies Law (Ley de Sociedades de Capital) provides that the directors of a company
are liable for any harm done to the company, shareholders or third parties by decisions adopted contrary to law, against the by-
laws of the company or without the diligence that is expected from a director. All of the members of the board of directors will
be liable unless they can prove they did not know the agreement was adopted or they expressly opposed it when it was being
undertaken. Therefore, directors of the company may be held responsible under article 236 where a transfer pricing policy
harms the financial situation of the company without adequate compensation.
19.2. Arm’s length value and criminal tax law

No criminal penalties may be imposed under criminal law with regard to intercompany transfer pricing situations, as there are
normally no hidden facts in these situations, and concealed facts are a requirement for criminal liability. Under accounting
principles, a company must record the price actually paid to, or by, another company in the course of its economic dealings. If
the price recorded in the accounting records is not a fair market value, an adjustment may be made in the tax return exclusively
for tax purposes (because of the arm’s length presumption), but in no case would there be an irregular accounting situation that
could lead to criminal responsibility.
19.3. Compatibility of Spanish thin capitalization provisions with Spanish

tax treaty provisions
As from 1 January 2012, Spanish thin capitalization rules are no longer applicable, since they have been replaced by a new
rule that does not provide for a fixed debt-to-equity ratio. These rules provide for a limitation on the deductibility of financial
expenses in intercompany financing transactions (see section 8.1.).
However, issues regarding the compatibility of the abolished thin capitalization rules and the Spanish tax treaties may still be
relevant in connection to those court cases pending to be resolved.

Spain had opted for an objective approach to the thin capitalization rules rather than a subjective (case-by-case analysis) one,
by establishing a specific debt-to-equity ratio. Also, the LIS expressly permitted applications for an APA to the tax authorities. In
this context, the abolished thin capitalization rules provided that taxpayers might submit to the tax authorities a proposal for the
application of a different debt-to-equity ratio, which had to be based on the borrowing that the taxpayer would have been able to
obtain under normal market conditions from unrelated persons or entities.
However, as can be seen from the above description, under Spanish law, domestic thin capitalization rules are far from
compatible with article 9 of the OECD Model. One should bear in mind that the abolished thin capitalization rules contained
an irrefutable fiction and the possibility of submitting a request for an APA cannot be identified with a burden of proof. To begin
with, no guarantee exists that such an APA request will be accepted by the tax authorities; furthermore, the taxpayer has no
opportunity other than through the APA to prove that the indebtedness exceeding the 3:1 ratio is at arm’s length. All these
circumstances render the abolished thin capitalization rules hardly compatible with article 9 of the OECD Model.
On the other hand, definitions of the terms “dividend” and “interest” are found in articles 10 and 11 of the OECD Model,
respectively. According to the OECD, these definitions are compatible with the application of the thin capitalization rules as long
as the creditor of the loan effectively shares the risks of the business of the debtor. These provisions seem to disadvantage
Spanish thin capitalization rules, in that their interpretation leads to the application of a subjective method which would take
into account all the circumstances in order to determine the existence of business risk, instead of an objective method like that
established in the abolished thin capitalization rules.
Another provision that must be studied in detail is article 24 of the OECD Model, which contains the general principle of non-
discrimination. Because the thin capitalization rules under domestic law are applicable exclusively to the relationship between
Spanish companies and non-residents, but never to a relationship solely among domestic associated entities, both article 24(4)
and article 24(5) may be asserted in order to limit the power of the tax authorities to characterize an interest payment as a
dividend for tax purposes. Article 24(4) is the specific rule, while the purpose of article 24(5) is the prevention of discriminatory
treatment of Spanish companies owned directly or indirectly by non-resident taxpayers as compared to Spanish companies
owned by Spanish nationals, through the application of any Spanish tax rule. In this regard, Spain has never expressed any
objections to the conclusions of the OECD Transfer Pricing Guidelines on this subject, while other countries have done so.
Basically, the abolished thin capitalization rules apply only when the lender is a non-resident. Apart from that, it uses the
technique of the maximum debt-to-equity ratio or objective method, without permitting the borrower to prove that, in the specific
case, the borrowing was at arm’s length; in fact, the different treatment granted to non-residents seems not to comply with the
principles of the OECD Model, as non-residents are in a worse situation than residents (because non-residents are covered
only when they take the position of lender). As a result, they may be regarded as contrary to the principles of article 9 of the
OECD Model.
In this context, case law agrees almost unanimously on the violation of the non-discrimination principle by Spanish thin
capitalization rules. Spanish case law in this regard includes the decision of the National Court (Audiencia Nacional) of 15
January 2004, the Resolution of the Supreme Court of Justice of Madrid (315/2000) of 23 February 2000 (applying article 24(5)
of the OECD Model) and the TEAC decision of 9 February 2001 (not applying article 24(5) of the OECD Model because article
24(4) is not available and it must give preference to a more specific rule, in this case Spanish domestic law).
This opinion also finds support in the fact that Spanish thin capitalization rules were modified following the European Court of
Justice decision in the Lankhorst-Hohorst case (mentioned above). In Lankhorst-Hohorst, the Court declared that the German
thin capitalization rules (very similar to those in Spain) were incompatible with the EU principle of freedom of establishment. As
a result of this amendment, the Spanish thin capitalization rules were not applicable where the lender entity is tax resident in an
EU Member State.
To complete the analysis of compatibility and application of Spanish domestic thin capitalization provisions with the OECD
Model, reference should be made to what was concluded in the 1987 OECD Thin Capitalization Report concerning article 23
with regard to the prevention of double taxation. In other words, this is the opposite scenario to the previous ones, i.e. basically
the consequences for a Spanish resident lender of the application by another state of its thin capitalization rules. In this case,
when the borrower’s country of residence characterizes the loan between related parties as a capital contribution and, as a
consequence, characterizes the interest as dividends, it is necessary to determine the extent to which the Spanish resident
company is bound by such foreign characterization in Spain. Specifically, it is worthwhile to ascertain whether the Spanish
lender may, with regard to the interest received from the non-resident borrower, apply the measures to avoid the international
double taxation of dividends (articles 31 and 32 or article 21 of the LIS).
In this regard, the 1987 OECD Thin Capitalization Report provides guidance for establishing when the methods to eliminate
double taxation are to be applied, namely:

- whenever the source state has deemed the interest payments to be dividends under article 9 of the OECD Model;
- whenever the residence state of the taxpayer has adopted the same type of provision to prevent thin capitalization as the
source state; and
- whenever the residence state concludes that it is correct to treat such interest as a dividend.
Therefore, when there is an applicable treaty and an adjustment is made in the residence state of the borrower in line with the
arm’s length principle, the interest received by the Spanish lender is treated as a dividend. However, reality is very different
from the OECD approach, as none of the countries included in the Report (e.g. Spain) has felt obliged, when applying a tax
treaty, to automatically accept the re-characterization of interest as dividends made by the state where the company is resident.
20. Texts of Relevant Provisions

20.1. Basic transfer pricing provisions in tax laws
All translations are the authors’.
Article 18 of the LIS: Related transactions

Article 18. Related transactions.
1. Transactions carried out between related persons or entities must be assessed at their market value. Market value is to be
understood as the value which would have been agreed between independent persons or entities under conditions that respect
the principle of free market competition.
2. The following persons or entities shall be deemed to be related:
a) An entity and its partners or participants.

b) An entity and its counselors or administrators, except corresponding to the remuneration for performance of their duties.
c) An entity and the spouses or persons related by family ties, in direct line or collaterally, by consanguinity or by affinity up to
the third degree of the partners or participants, counselors or administrators.
d) Two entities that belong to a group.
e) An entity and the counselors or administrators of another entity, when both entities belong to a group.
f) An entity and another entity in which the former holds, indirectly, at least 25% of the entity’s share capital or its equity.
g) Two entities in which the same partners, participants or their spouses or persons related by family ties, in direct line or
collaterally, by consanguinity or by affinity up to the third degree, hold, directly or indirectly, at least 25% of the entity’s
capital or of its equity.
h) An entity resident in Spanish territory and its permanent establishments abroad.
In those cases where the connection is defined based on the relation of the partners or participants with the entity, the
participation must be greater than or equal to 25%. The mentioned administrators include those by law and those by deed.
A group exists when several entities establish a decision-making unit in accordance with the criteria established in article 42 of
the Commercial Code, irrespective of their residency and of the obligation to present consolidated annual accounts.
3. In order to prove that the completed transactions have been assessed at their market value, the related persons or entities
shall maintain the legally required documentation at the disposal of the Tax Authorities in keeping with the principles of
proportionality and sufficiency.
This documentation shall have simplified content pertaining to related persons or entities whose net turnover, as defined in
article 101 of this Law, is less than EUR 45 million.
Under no circumstances shall the simplified content of the documentation apply to the following transactions:
1. Transactions carried out by payers of the individual income tax, in carrying out an economic activity, to which the method of
objective calculation applies with entities in which they or their spouses or direct or collateral family members hold, directly
or indirectly, at least 25% of the entity’s capital or of its equity.

2. Business transfer transactions.

3. Transactions involving the transfer of securities or shares representing a holding in the equity of any type of entities that
are not negotiable in any of the regulated securities markets or that are negotiable in regulated markets in countries or
territories classified as tax havens.
4. Real estate transactions.
5. Transactions involving intangible assets.
The specific documentation will not be required:
a) For transactions between entities that are part of the same consolidated tax group, without prejudice to the provisions of
article 65.2 of this Law.
b) For transactions with members or with other entities in the same consolidated tax group for economic interest groups
pursuant to the provisions of Law 12/1991, of 29 April, on Economic Interest Groups, and temporary joint ventures,
regulated in Law 18/1982, of 26 May, regarding the taxation of groupings and temporary joint ventures of companies
and regional industrial development ventures, and registered in the special registry of the Ministry of Finance and Public
Administration. However, the specific documentation will be required in the case of temporary joint ventures or similar forms
of collaboration that adopt the system set out in article 22 of this Law.
c) For transactions carried out in the sphere of public stock offers or takeover bids for securities.
d) For transactions with the same related person or entity, provided that the amount of consideration for the set of transactions
does not exceed EUR 250,000, according to the market value.
4. To determine the market value, any of the following methods shall be used:
a) Comparable uncontrolled price method, by which the price of the asset or service in a transaction between related persons
or entities is compared to the price of an asset or service that is identical or similar in its characteristics in a transaction
between independent persons or entities under similar circumstances, in due course making the necessary corrections to
obtain equivalence and take into account the particulars of the transaction.
b) Cost-plus method, by which, to the acquisition price or production cost of the asset or service, one adds the usual margin
in identical or similar transactions between independent persons or entities or, in the absence thereof, the margin that
independent persons or entities apply to similar transactions, in due course making the necessary corrections to obtain
equivalence and take into account the particulars of the transaction.
c) Resale price method, by which, from the sale price of the asset or service, one deducts the markup applied by the party
making the on-sale in identical or similar transactions between independent persons or entities or, lacking that, the margin
that independent persons or entities apply to similar transactions, in due course making the necessary corrections to obtain
equivalence and take into account the particulars of the transaction.
d) Profit split method, by which the part of the shared result derived from said transaction or transactions is assigned to each
related person or entity carrying out jointly one or several transactions, according to a criterion that reflects adequately the
conditions which independent persons or entities would have found acceptable under similar circumstances.
e) Transactional net margin method, by which the net result is attributed to the transactions carried out with a related person
or entity, calculated on the costs, sales or volume that appears to be most appropriate in view of the characteristics of
identical or similar transactions between independent parties, making, where necessary, the appropriate corrections to
obtain equivalence and take into account the particulars of the transactions.
The choice of the assessment method shall take into account, among other circumstances, the nature of the related
transaction, the availability of reliable information and the degree of comparability between the related and unrelated
transactions.
When it is not possible to use the foregoing methods, other generally accepted assessment methods and techniques that
respect the principle of free market competition may be used.
5. In the case of services between related persons or entities, assessed in accordance with paragraph 4, it shall be required
that the services rendered produce or could produce an advantage for or be useful to the recipient thereof.
When what is involved are services rendered jointly in favour of several related persons or entities, and as long as it is not
possible to individualize the service received or to quantify the decisive elements in their compensation, it shall be possible to

allocate the total consideration between the persons or entities benefiting in accordance with certain rulings on allocation that
reflect rational criteria. This criterion shall be deemed to be fulfilled when the method applied, in addition to the nature of the
services and the circumstances under which they are rendered, takes into account the benefits obtained or likely to be obtained
by the persons or entities receiving the services.
6. For the purposes of paragraph 4 above, the taxpayer may consider the agreed value to match the market value in the case
of services rendered by a professional partner, natural person or related entity when the following requirements are met:
a) More than 75% of the revenues of the entity come from professional activities, and it possesses sufficient material and
human resources to perform the activity.
b) The amount of the remuneration for all the partners/professionals for providing the services to the entity is not less than
75% of the result prior to deducting the remuneration for all of the partners/professionals for providing their services.
c) The amount of remuneration for each of the partners/professionals meets the following requirements:
1. It is determined according to their contribution to the proper functioning of the entity, with the applicable qualitative and/
or quantitative criteria recorded in writing.
2. It is not less than 1.5 times the average salary of the employees of the company who carry out functions similar to those
of the entity’s professionals/partners. Lacking these, the amount of the aforementioned remunerations may not be less
than five times the Public Index of Multiple Purpose Income.
Failure to meet the requirement in point 2 here for any one professional/partner shall not prevent application of the provisions of
this paragraph to the remaining partners/professionals.
7. In the event of agreements for the sharing of costs of assets or services entered into between related persons or entities, the
following requirements must be met:
a) The participating persons or entities that are parties to the agreement must access the ownership or other rights with
similar economic consequences of the assets or rights which, in due course, are the object of acquisition, production or
development as a result of the agreement.
b) The contribution of each participating person or entity must take into account the anticipated usefulness or advantages that
each of them expects to obtain under the agreement, based on rational criteria.
c) The agreement must anticipate a variation in the circumstances or participating persons or entities, by providing for
compensatory payments and adjustments deemed necessary.
The agreement between related persons or entities must comply with the requirements established in the regulations.
8. For taxpayers with a permanent establishment abroad, when so established in an applicable international double taxation
treaty, estimated income for internal transactions with the permanent establishment shall be included in the taxable base,
assessed at their market value.
9. Taxpayers may request the Tax Authorities to make a valuation of the transactions carried out between related persons or
entities prior to their being carried out. Such a request must be accompanied by a proposal that is based on the principle of free
market competition.
The Tax Authorities may formalize agreements with other Authorities in order to determine, jointly, the market value of
transactions.
The valuation agreement shall affect the transactions entered into after the date on which approval is granted, and shall remain
valid during the tax periods specified in the agreement itself. This may not exceed the four tax periods following that in which
the approval is granted. Similarly, it may provide that its effects cover transactions of prior tax periods, provided that the Tax
Authorities' right to determine the tax liability through the pertinent adjustment has not expired or that there is a definitive
adjustment affecting the transactions subject to the request.
In the event of any significant variation in the economic circumstances in force at the time of the approval of the agreement by
the Tax Authorities, the agreement may be modified to adapt it to the new economic circumstances.
The proposals to which this paragraph refers can be deemed to be rejected once the term for resolution has elapsed.
The procedure for resolving agreements on the valuation of related transactions, as well as on their possible extension, shall be
established by regulation.

10. The Tax Authorities may verify the transactions carried out between related persons or entities and shall make any pertinent
corrections in the terms that were agreed between the independent parties, doing so according to the principle of free market
competition with regard to transactions subject to this tax, to the individual income tax or to the non-resident income tax which
were not assessed at their normal market value, based on the documentation produced by the taxpayer and the data and
information available to it. The Tax Authorities shall be bound by that correction regarding the remaining related persons or
entities.
This correction shall not determine the taxation for this tax or, in due course, for the individual income tax or for the non-resident
income tax of a higher income than that effectively derived from the transaction for the set of persons or entities that had
carried it out. To make the comparison, that portion of the income which is not included in the taxable base shall be taken into
account when any method of objective calculation is applicable.
11. In those transactions where it is determined that the agreed value differs from the market value, the difference between both
values, for the related persons or entities, shall be handled in terms of taxation in a manner that would correspond to the nature
of the income evidenced as a consequence of the existence of said difference.
In particular, in those cases where the link is defined based on the relationship between partners or participants and the entity,
the difference shall generally be treated as follows:
a) When the difference is in the partner or participant’s favour, the portion thereof that corresponds to the percentage of
participation in the entity shall be considered reimbursement of equity for the entity and participation in profits for the
partner. The part of the difference that does not correspond to this percentage shall be considered reimbursement of equity
for the entity and, for the partner or participant, as income received from an entity as a partner, shareholder, associate
or participant pursuant to the provisions of article 25.1.d) of Law 35/2006, of 28 November, on individual income tax and
partially amending the corporate income tax, non-resident income tax and wealth tax laws.
b) When the difference is in the entity’s favour, the part of the difference that corresponds to the percentage of participation
in itself shall be considered a contribution by the partner or participant to the equity of the entity and shall increase the
acquisition value of the partner or participant’s participant. The portion of the difference that does not correspond to the
percentage of participation in the entity shall be considered income for the entity and a gift for the partner or participant. In
the case of payers of the non-resident income tax with no permanent establishment, the income shall be considered capital
gains pursuant to the provisions of article 13.1.i)4. of the consolidated text of the Non-Resident Income Tax Act, approved
by Royal Legislative Decree 5/2004, of 5 March.
The provisions of this paragraph shall not apply when performing a restitution of assets between related persons or entities in
the legally established terms. Such restitution shall not be regarded as income for the affected parties.
12. The verification of related transactions shall be governed by the following rules:
1. Verification of the related transactions shall be carried out within the procedure already commenced regarding the
compulsory taxable party the tax situation of which is the object of verification. Without prejudice to what is set out in the
following paragraph, these actions shall be understood solely with said compulsory taxable party.
2. If the compulsory taxable party were to file an appeal or claim against the verification performed against such taxpayer as
a consequence of the adjustment of the valuation, the remaining affected related persons or entities shall be notified of said
circumstance so that they can appear in the corresponding procedure and present appropriate assertions.
Once the appropriate term has elapsed without the compulsory taxable party having filed any appeal or claim, the remaining
affected related persons or entities shall be notified of the settlement made so that, should they so wish, they may opt to jointly
file the appropriate appeal or claim. The filing of an appeal or claim shall interrupt the prescribed period during which the Tax
Authorities have the right to make the appropriate adjustment against the compulsory taxable party and the other affected
persons or entities, which shall be notified of this interruption. The term shall begin to run again when the adjustment reached
by the authorities has become final.
3. The finalization of the adjustment shall determine its efficacy and resolution with regard to the remaining related persons
or entities. The Tax Authorities shall make the appropriate adjustments, unless these adjustments have been made by the
affected person or entity itself, consistent with the terms to be established in the regulations.
4. The terms of this paragraph shall be applicable with regard to the related persons or entities affected by the adjustment that
are payers of corporate income tax, individual income tax or the non-resident income tax.
5. The terms of this paragraph shall be understood without prejudice to what is envisaged in those international treaties and
agreements that have come to form part of Spanish domestic rules.

6. When the value of the transaction is verified as part of the verification referred to in this paragraph, the provisions of article
57.2 and article 135 of the General Tax Act (Law 58/2003, of 17 December) shall not apply.
13.
1. Failure to maintain or maintaining in an incomplete manner or with false data, the documentation which must be kept at the
disposal of the Tax Authorities by related persons or entities, in compliance with what is stipulated in paragraph 3 of this article
and its development regulations, represents a breach of tax procedure when the Tax Authorities do not make adjustments
pursuant to the provisions of this article.
This breach shall be regarded as serious and shall be penalized in accordance with the following rules:
a) The penalty shall consist of a fixed monetary fine of EUR 1,000 per data item and EUR 10,000 per set of data which was
omitted, inaccurate or false, with regard to each one of the obligations to provide documentation established by regulation
for the group or for each person or entity in its condition as taxpayer.
b) The penalty envisaged in prior point will be limited to the lower of the following two amounts:
- 10% of the total amount of the transactions carried out in the tax period and subject to this tax, individual income tax or
non-resident income tax;
- 1% of the net turnover.
2. Provided that they involve corrections by the Tax Authorities pursuant to the provisions of this article for transactions subject
to this tax, individual income tax or non-resident income tax, the following situations constitute a tax breach:
(i) failure to provide or providing in an incomplete manner or with false data the documentation which must be kept at the
disposal of the Tax Authorities by related persons or entities in compliance with what is stipulated in paragraph 3 of this
article and its development regulations;
(ii) when the market value derived from the documentation stipulated in this article and in its developed regulations, is not
declared as part of the corporate income tax, the individual income tax or the non-resident income tax.
These breaches shall be regarded as serious and shall be penalized with a proportional monetary fine of 15% of the amounts
that result from the corrections that correspond to each transaction. This penalty shall be incompatible with that which
proceeds, in due course, by application of article 191, 192, 193 or 195 of the General Tax Act, regarding the part of the grounds
that would have given rise to the imposition of the breach stipulated here in number 2.
3. The corrections made by the Tax Authorities pursuant to the provisions of this article with regard to transactions subject to
this tax, individual income tax or non-resident income tax that result in a reduced tax payment, in the undue procurement of tax
rebates or in the undue determination or accrediting of other amounts to be compensated in future declarations, or if the net
income was declared incorrectly, all of that without there having been a lack of tax payment or any procurement of rebates due
to having compensated any amounts pending compensation in a verification procedure or investigation, having met the specific
documentation obligation referenced in paragraph 3 of this article, it shall not be regarded as having constituted breaches of
article 191, 192, 193 or 195 of Law 58/2003, of 17 December, on General Taxation, for the part of the basis that had given rise
to the aforementioned corrections.
4. The penalties stipulated in this paragraph will be compatible with those established for resistance, obstruction, excuse
or negation of the actions of the Tax Authorities in article 203 of the General Tax Act, for lack of attention given to the
requirements.
With regard to the penalties imposed pursuant to the provisions of this article, the provisions of paragraphs 1.b) and 3 of article
188 of the General Tax Act shall apply.
14. The market value for the purposes of this tax, the individual income tax or the non-resident income tax shall not apply with
respect to other taxes, unless expressly provided otherwise. Furthermore, the value for the purposes of other taxes shall not
apply with respect to the market value of the transactions between related persons or entities in this tax, individual income tax
or non-resident income tax, unless expressly provided otherwise.
20.2. Guidance issued by tax authorities or ministry of finance

May be added at a later stage when available.

20.3. Internal instructions and guidance for tax authorities relating to

transfer pricing and transfer pricing audits
May be added at a later stage when available.

Spain - Transfer Pricing

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Abbreviations, Terms and References

AN National Court Audiencia Nacional

APA Advance pricing agreement -

CCA Cost contribution arrangement -

CCo Commercial Code Código de Comercio

CUP Comparable uncontrolled price Precio libre comparable

EU JTPF EU Joint Transfer Pricing Forum -

LGT General Tax Law Ley General Tributaria

IP Intellectual property Propiedad intelectual

MAP Mutual agreement procedure Procedimiento de mutuo acuerdo

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

MNE Multinational enterprise -

RDGT Ruling of the Directorate-General of Resolución de la Dirección General de

TEAC Central Economic Administrative Court Tribunal Económico Administrativo

TS Supreme Court Tribunal Supremo

- Law 27/2014, of 27 November 2014, of the Corporate Tax

- Supreme Court, 10 January 2007

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

- National Court, 15 October 2007

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

- Supreme Court, 13 November 2019

1. Corporate Tax System in Brief

2.2. Legal basis of arm’s length principle

2.3. Regulations and circulars

2.4. Scope of legislation

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

Under article 7 of the LIS taxpayers are defined as:

2.5. Concepts of associated enterprises and control

- an entity and its shareholders when the participation is at least 25%;

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

(1) it holds the majority of the voting rights;

2.6. Status and impact of OECD Guidelines and UN TP Manual

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

- it must be agreed upon in writing and received under contribution criteria;

3.2. Internal comparables

3.3. External comparables

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

3.4. Foreign comparables and secret comparables

3.6. Comparability adjustments

3.7. Arm’s length range and statistical tools

3.8. Timing issues in comparability

4. Transfer Pricing Methods

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

4.2. Hierarchy of methods

4.3. Selection of a method

- the nature of the transaction;

4.4. Comparable uncontrolled price method

- the same market in geographic terms must be considered;

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

Other adjustments that may be required are the following:

4.5. Resale price method

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

4.6. Cost-plus method

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

Direct and indirect costs of assembly = EUR 1,000.

Direct and indirect costs of Company D = EUR 1,200.

4.7. Transactional net margin method

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

4.8. Profit split method

4.9. Other methods

Exported / Printed on 20 Oct. 2022 by WU (Wirtschaftsuniversität Wien).

4.10. Combined use of methods