Changes in the Spanish transfer pricing legislation
A new Corporate Income Tax Law (Act 27/2014 dated 27 November 2014) has been enacted by the Spanish Government, and it includes some changes in transfer pricing rules coming into force for the tax years beginning as from 1 January 2015. This new rules have established a more rational and consistent regulation following the EU and the OECD. In the following, the most relevant changes will be summarized:
The shareholder interest in an entity is raised from 5% (1% for listed companies) to 25% to be considered as related party. Thus, the perimeter shareholder-entity in order to be considered as related party has been restricted and brought closer to rules applicable in most OECD countries. Although transactions between a company and its directors remain to be considered as a transaction between related parties, the remuneration of directors is excluded from being considered as a controlled transaction.
Selection of appropriate Transfer Pricing Methods:
The new Law has removed the restriction to apply transactional profit-based methods only when none of the traditional transactional methods (CUPM, CPM and RPM) can be applied. Thus, the hierarchy between these two types of methods is no longer applicable.
Additionally, when none of the OECD transfer pricing methods can be applied, the new Law now allows using other generally accepted methods or valuation techniques as far as they are consistent with the arm’s length principle.
Transfer Pricing Documentation requirements:
The new Law provides simplified transfer pricing documentation requirements for corporations or entities with a turnover lower than 45 million euros.
Transactions excluded of documentation requirements are mainly those made with one single related party not exceeding the amount of 250,000 euros.
Spanish government has announced the new corporate tax regulation will probably include the obligation for multinational companies to report on their activities in other countries ("country by country report" according to OECD/G20 BEPS Project). This obligation shall enter into force in 2016 so information should be included in the documentation to be kept in year 2017 when corporate income tax return is filed.
Secondary Adjustment rules:
The application of the secondary adjustment rule may be excluded when the funds corresponding to the primary adjustment are restored between the related parties involved in the transaction.
Penalty regime for infringement of Transfer Pricing Documentation rules:
The penalties for a formal infringement of the transfer pricing documentation requirements are reduced to 1,000 euros (currently 1,500 euros) per data and 10,000 euros per omitted, inaccurate or misleading group of data (currently 15,000 euros).
Advance Pricing Agreements:
APAs may also be applicable to non-statute-barred tax years.
Foreign companies having a permanent establishment in Spain are allowed to deduct royalties, interests or commissions paid in exchange for technical assistance or for the use or assignment of other items or rights derived from operations with its head office for Non-Resident Income Tax purposes (provided that a Double Tax Treaty is applicable). Nevertheless, these expenses are considered as income obtained by the foreign company without an intermediary permanent establishment and liable to subsequent withholding taxes. These operations carried out by the head office with the permanent establishment must be valued at arm’s length as well.