Transfer Pricing in Spain

Transfer pricing legislation in Spain is regulated by Article 18 of Law 27/2014 (the Law) or “Ley del Impuesto sobre Sociedades”.

It is also complemented by Articles 13 to 36 of its Regulations approved by Royal Decree 634/2015.

The latter regulatory provision establishes the formal transfer pricing obligations, such as the documentation required to verify that such transactions are at market value, taking into account the guidelines set out by the Organisation for Economic Co-operation and Development (OECD) in Action 13 of the BEPS Plan (Base and Erosion and Profit Shifting).

Furthermore, Order HFP/816/2017 established the sworn statement of information on transactions with related parties and tax havens, which, together with the aforementioned rules, establishes a framework for the transfer pricing regime in Spain.

Transfer pricing: Definition

Transfer prices are defined as those prices or values agreed in transactions carried out between related or affiliated parties. This type of operation is also known as intercompany transactions.

Principle of full competition: Concept

This principle governing transfer pricing is also known as the “arm’s length” principle and is based on the fact that the prices or values agreed in transactions between related parties are in accordance with market value.

This principle is also regulated in Spain’s transfer pricing legislation, in paragraph 1 of Article 18 of Law 27/2014 or “Ley del Impuesto sobre Sociedades”.

This paragraph states that transactions between related persons or entities must be valued at market value, which is understood to be the value agreed between independent parties.

Definition of related parties in Spain

According to numeral 2, of article 18, of the Law, it will be understood as persons or related entities, when they are in the following situations:

  • The partners or participants in relation to the entity.
  • The entity and its administrators, with the exception of the remuneration they receive for the exercise of their functions.
  • The entity and the spouses or persons with a kinship relationship, whether direct or collateral, by consanguinity or affinity up to the third degree with respect to the partners or administrators.
  • Two entities provided they belong to a group.
  • One entity in relation to the administrators of another, provided that the latter belongs to the same group. One entity in relation to the other, when the first owns indirectly from the second, at least 25% of the capital.
  • Two entities which share the same partners or participants, or their spouses or persons with family relationship according to point three, and these participate directly or indirectly in at least 25% of the capital.
  • A company resident in Spain in relation to its permanent establishments abroad.

As regards the definition of “group”, the law states that a group exists when one entity holds or may hold control of another or others, as established in Article 42 of the Spanish Commercial Code.

Transfer pricing methodology in Spain

According to numeral 4, of article 19 of the Law, in order to determine the market value of the operations subject to the transfer pricing rules, one of the five methods indicated below may be used:

  • Comparable free price method.
  • Cost plus method.
  • Resale price method.
  • Method of distribution of results.
  • Net operating margin method.

It should also be noted that the choice of any of the above methods should take into account the circumstances, nature of the transaction, the information available and the degree of comparability of the transactions.

To the extent that it is not possible to use any of these methods, the taxpayer may apply other valuation methods in accordance with the principle of full competition.

Comparability analysis in Spain

In order to determine whether two or more operations are comparable or equivalent, paragraph 2 of Article 17 of the Regulations to the Corporate Income Tax Law indicates that the following circumstances must be taken into consideration:

  • The specific characteristics of the operation.
  • The functions assumed by the parties to the transaction, as well as the assets and risks involved.
  • The contractual terms.
  • The economic circumstances that governed the operation.
  • The business strategies.

Transfer pricing documentation in Spain

Paragraph 3 of Article 18 of the Law states that in order to prove that the prices in their transactions with related parties have been valued according to the market, taxpayers must maintain the documentation established by Regulations, so that it may be made available to the Tax Administration when required.

In relation to this, articles 13 to 16 of the Regulations indicate the documentation that must be maintained in accordance with the law.

Standardized document

According to numeral 4, of article 16 of the Regulations, those persons or entities that do not exceed ten million Euros may present a standardized document with the purpose of complying with the specific documentation required in the mentioned regulations.

Simplified taxpayer’s document

According to numeral 3, of article 18 of the Law, in accordance with article 16 of the above mentioned Regulations, it indicates that those taxpayers whose net turnover is greater than 10 million, but less than 45 million, may present the specific documentation in simplified format.

Such documentation will have the following content:

  • Description and amount of the transactions with related parties.
  • Tax identification data of the related parties.
  • Identification of the method of valuation.
  • Comparables obtained and intervals derived from the method used.

Specific taxpayer documentation

Paragraph 4 of Article 16 of the Regulations states that the specific documentation of the taxpayer will be applicable to those whose net turnover is greater than 45 million euros, including permanent establishments of entities not resident in Spanish territory.

Such documentation will have to include information such as the structure of the company, a description of its activities, its main competitors, detailed information on related operations and economic and financial information of the taxpayer.

It should be noted that there are exceptions to the obligation to count such information, one of which is when the transactions are carried out with the same related party and the total consideration does not exceed the amount of 250,000 euros, in accordance with the market value.

Group documentation

Said documentation will be applicable, as well as the specific documentation, for those taxpayers whose net turnover exceeds 45 million Euros, in accordance with numeral 2, of article 15 of the Regulations.

The information to be detailed includes the structure and organisation of the group, its activities, information regarding the group’s intangible assets and the group’s financial and tax information.

Country by country information

Paragraph 1 of Article 14 of the Regulations states that such report shall be applicable to the following entities:

  1. Entities resident in Spain that are the group’s dominant company.
  2. Entities domiciled in Spain, directly or indirectly dependent on a company not domiciled in Spanish territory, which in turn is not dependent on another, provided that:
  • There is no country-by-country reporting requirement or its analogous in the country of residence of the foreign entity.
  • There is no information exchange agreement with the country in which the foreign entity resides.
  • If the aforementioned agreement has been systematically breached and the Spanish tax authorities have informed their subsidiaries thereof.

It also states that subsidiaries resident in Spain are not obliged to provide information on a country-by-country basis when the parent company of the multinational group has appointed another company of the group abroad, provided that the latter is resident in an EU country.

The standard indicates that the deadline for submitting the information will be twelve months after the end of the tax period.

Tax havens and market value in Spain

In accordance with paragraph 2 of Article 19 of the Law, those transactions carried out with persons or entities resident in countries or territories classified as tax havens must also be agreed upon at market value.

This article also states that those who carry out transactions with these entities are obliged to have the documentation indicated in paragraph 3 of Article 18 of the Law, which was described in previous paragraphs, taking into consideration the specifications set forth in Article 37 of the Regulations.

Sworn statement on transfer pricing in Spain

Order HFP/816/2017 establishes the obligation to file an informative declaration of transactions with related parties and transactions related to “paraísos fiscales” through Model 232.

According to article 2 of the referred norm, the following taxpayers are obliged to do so:

  1. To carry out transactions with the same related party, provided that the total amount of the consideration is greater than 250,000 euros.
  2. Those that have carried out specific operations, provided that the total amount of each of these types of operations in the tax period exceeds 100,000 euros.

It should be borne in mind that if transactions are carried out with “paraísos fiscales”, Form 232 must be filed, regardless of the amount.

As for the period of presentation, this must be done in the following month after a period of 10 months from the end of the tax year.

Sanctions related to transfer pricing in Spain

In relation to the failure to file with respect to the formal transfer pricing obligations or their incomplete filing, the standard states that in the event of failure to make any adjustment, the penalty shall be 1,000 euros for each omitted, inaccurate or false data and 10,000 euros for each set of data.

If an adjustment is made, the fine will amount to 15% of the correction made.


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