CMS Expert Guide to Transfer Pricing Documentation in Spain

Spanish transfer pricing rules were modified in order to align the Spanish legislation with the standards included in the final report on Action 13 of the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project. 

In this regard, the Corporate Income Tax Law 27/2014, of 27 November 2014 (CITL), and the Royal-Decree 634/2015, of 10 July 2015, for the approval of the Regulations of the Corporate Income Tax (CITR), have maintained the obligation for taxpayers to keep transfer pricing documentation at the Spanish Tax Authorities (STA) disposal upon request, in order to justify that transactions carried out between relative parties complied with the arm’s length principle.  

Notwithstanding the above, several types of transactions will not be subject to documentation requirements, mainly: 

• Transactions carried out between companies forming part of a tax consolidation group; 
• Transactions that an economic interest grouping (Asociación de interés económico) and joint venture (Unión Temporal de Empresas or UTE) carry out with its members or with other entities belonging to the same tax consolidation group. However, joint ventures (UTE) and other equivalent structures, which apply the exemption established in article 22 of the CITL on the income attributable to any foreign permanent establishments will have to meet the documentation requirements; 
• Transactions carried out in the context of a takeover bid or a public stock offering; and 
• Transactions with the same related individual or entity when the total market value of the same does not exceed EUR 250,000. 

Two categories of documentation requirements are in general established in the CITR: documentation relating to the group to which a taxpayer belongs, if any (Master File) and documentation relating to the taxpayer itself (Local File). Additionally, the CITR established an additional requirement applicable to controlling companies resident in Spain with a global turnover exceeding EUR 750 million: the Country-by-Country Report. 

On this basis: 

• If the taxpayer belongs to a group as described in article 42 of CC, it will be generally obliged to fulfil both the documentation relating to the group (Master File and CbCR) and the documentation relating to the taxpayer itself (Local File).  
• If the taxpayer does not belong to a group as described in article 42 of CC, it will only be asked to fulfil the obligation concerning the documentation relating to itself (Local file). 

For these purposes, note that a group is deemed to exist when a company holds, or may hold, directly or indirectly, the control over one or several others. In particular, there shall be presumed to be control when a company, which shall be classified as controlling, is in a relationship with another company, which shall be classified as dependent, in which any of the following situations arise: 

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 two 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 a) and b) above. 

Having settled the above, the CITR develops the content of each of the abovementioned documents: 

Master File (article 15 of CITR – effective for FY commencing on or after 2016): 

Information concerning the structure and organisation of the group: 

• General description of the organisational, legal and transactional structure of the group, as well as any relevant changes; 
• Identification of the intragroup companies. 

Information concerning the activities of the group: 

• Description of the main activities of the group, its main geographic markets, its main income sources and the supply chain of those goods and services representing at least a 10% of the aggregate net turnover of the group; 
• General description of the functions performed, risks assumed and main assets used by the group entities, including changes with respect to the previous year; 
• Description of the transfer pricing policy followed by the group, including the valuation methods adopted (compliance with the arm’s length principle); 
• Details regarding any significant cost sharing agreements and service agreements within the group; 
• Description of the operations of reorganisation and acquisition or transfer of relevant assets, if any. 

Information concerning intangibles of the group: 

• General description of the global strategy followed by the group in respect of the development, ownership and exploitation of intangible assets, including the placement of the main facilities where R&D activities are carried out; 
• Details regarding the ownership of patents, trademarks and other intangible assets (list of relevant intangible assets for the purposes of transfer pricing – including ownership and general description of the intangible policies implemented within the group, amount of compensation and details related to related-party transactions derived from the use of the intangibles, agreements settled between related-parties in connection to the aforementioned intangible assets and any details that could be provided in respect of any transfer of intangible properties). 

Information concerning financial activities of the group: 

• Details regarding the tax and financing situation of the group (i.e. general overview of the group’s financing methods, details related to the group’s companies involved in financing functions and description of the transfer pricing policies followed by the group in connection to financing agreements between companies of the group). 
• Note here that, according to article 15.2 of CITR, the obligation to hold the Master file will not apply regarding groups as described in article 42 of the CC with an aggregate net turnover lower than EUR 45 million (the limit with the prior CITL was EUR 10 million). 

CbCR (article 14 of CTIR): 

See section B below. 

Local file (article 16 of CITR - effective for FY commencing on or after 2016): 

Information concerning the taxpayer: 

• Description of the management structure of the taxpayer, organisation chart and description of the individuals or entities to whom the management reports are addressed, including the countries in which such individuals or entities are tax resident; 
• Description of the activities conducted by the taxpayer, business strategy and its participation in asset transfers or restructuring transactions in the FY; and 
• Key competitors. 

Information concerning related-party transactions: 

• Description of the nature, characteristics and amounts of the related-party transactions carried out; 
• Identification data/details of the taxpayer and the related parties involved in the transactions; 
• Comparability analysis (article 17 CITR). 
• Explanation regarding the valuation methods that have been chosen, reasons for the implementation thereof, comparable obtained and the resulting values or ranges of values; 
• When appropriate, 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 any Advance Pricing Agreements (APAs) currently in force as well as other analogous procedures involving the group and the tax authorities; 
• Any other relevant information used by the taxpayer to determine the valuation of the transactions carried out between related parties. 

Economic/financial information concerning the taxpayer: 

• Annual financial information 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 concerning the comparables used. 

Note that, according to articles 18.3 of CITL and 16.4 of CITR, related individuals or entities with a net turnover under EUR 45 million are entitled to hold the Local File with the following simplified content:  

• Description of the nature, characteristics and amounts of the transactions carried out between related parties; 
• Identification data regarding the taxpayer and the related parties involved in the transactions carried out; 
• Identification of the valuation method applied; 
• Results achieved from the comparability analysis and value (or range of values) obtained from the valuation method applied.  

Notwithstanding the above, and according to articles 18.3 of CITL and 16.5 of CITR, the aforementioned simplified content would not apply, in general terms, regarding the following transactions: 

1. Transactions accomplished by Personal Income Tax taxpayers in the course of an economic activity. 
2. Business transfers; 
3. Share transfers; 
4. Real-estate transfer transactions; 
5. Transactions involving intangible assets. 

Finally, note that, according to article 16.4 of CITR, the obligation to hold the Local File regarding SME shall be deemed complied with through the filing of an official model issued by the STA.  

Additionally, according to article 16.5 of CITR, SME and individuals would be exempt from the obligation to include a comparability analysis provided that the transactions are not accomplished with parties that are tax resident in tax havens.  

2.1 Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)? 

Please refer to question 1 above. 

2.2 What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)? 

Article 18.2 of CITL contains an extensive description of cases and circumstances in which there is deemed to be an “association” for the purposes of the application of the Spanish transfer pricing regime (e.g. companies which are part of a group under article 42 of CC or companies – or individuals – holding a direct or indirect participation of 25% in their subsidiaries).  

In particular, article 18.2.i) of CITL establishes that an entity and its permanent establishments abroad would have the consideration of associated parties for the purposes of the Spanish transfer pricing regime. 

2.3 For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD? 

Yes. The content of the documentation required under the Spanish transfer pricing regime is similar to the one described in the Code of Conduct on transfer pricing documentation for associated enterprises in the EU (EU TPD). 

2.4 For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach? 

Yes. As stated in question 1 above, the amendments introduced in the Spanish transfer pricing rules by the CITL and CITR aim to align Spanish legislation to the standards included in the revisions to chapter V of the OECD transfer-pricing guidelines (final report on Action 13 of BEPS project). 

2.5 Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state? 

The STA are entitled to require documentation or additional information of the group that, under their view, may be necessary to determine whether the transactions directly or indirectly affect those carried out by the taxpayer. For these purposes, foreign parent companies (of a group) must appoint a resident entity of the group to be responsible for storage of the documentation, although the STA can summon any taxpayer of the group to furnish such group documentation. 

2.6 If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)? 

From a practical perspective, pan-European benchmarks are accepted by the STA. However, note that no specific provisions are established in this regard and therefore, the practical criteria may be different depending on the particular case analysed. 

2.7 If comparable studies are to be provided in general, are safe harbours / specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services 1  or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies? 

It depends on the particular case analysed. However, refer to question 2 above, in respect of the particular exemptions (concerning documentation) applicable to SME companies. 

In this respect, the Corporate Income Tax Law establishes that the interpretation of the provisions on related-party transactions must be made precisely in accordance with the OECD Transfer Pricing Guidelines and the recommendations of the EU Joint Transfer Pricing Forum. 

Regarding safe harbour rules regulated in the Spanish law, Article 18.6 of the CIT Law establishes a safe harbour for professional partnerships, so that it is sufficient for the entity to assign 75% of the income to the partners, under the conditions established, such as the fact that the company has the human and material resources to carry out the work or that more than 75% of the income comes from professional activities, to consider the transaction valued at market value. 

2.8 What language(s) are to be used by taxpayers in submitting the transfer pricing documentation? 

Although no specific rule has been laid down in Spanish legislation, the STA state that documentation should be generally accepted for review in English, except if it is very complex. In this case, a specific translation may be requested. Since the language of Spanish administrative procedures is generally Spanish according to law, it is always possible that translation of the documentation is requested, so it is preferable to keep the documentation in Spanish. 

As established in the CITR, all documentation must be maintained at the disposal of the STA by the filing date of the annual CIT return. Therefore, the STA would be entitled to request all documentation that is to be at their disposal by said date. 

In this regard, assuming that the fiscal year of the company coincides with the calendar year, the documentation must be at the STA's disposal 25 days following the period of six months from the close of the company’ tax period. 

According to article 18.13 of CITL, if the taxpayer fails to comply with the aforementioned documentation requirements, penalties could be imposed since this failure constitutes a tax violation. The penalties would be determined as follows: 

• If the STA do not modify the taxpayer’s valuation, penalties would consist of a fixed amount of EUR 1,000 per item and EUR 10,000 per group of items with regard to each one of the documentation requirements that is not complied with or which is improperly complied with under the CITR. The aforementioned penalty is limited to the lower of: 
  • 10% of the amount of the overall transactions subject to the Corporate Income Tax, the Personal Income Tax or the Non-Residents Personal Income Tax in the relevant tax period; or 
  • 1% of net turnover. 
• If the STA modify the taxpayer’s valuation, the penalty would consist of 15% of the amounts resulting from any corrections made.  

Note that no penalties would be imposed, even if the taxpayer’s valuation is modified, when the taxpayer has followed the documentation requirements and has valued a transaction based on the transfer price derived from such documentation. 

Formerly, the burden of proof was borne by the STA, but currently, based on the legislative amendments to the Spanish CITL, the burden of proof relies now on the taxpayer. In this regard, as the taxpayer must value the related-party transactions on an arm’s length basis consistently with the documentation filed, the documentation obligation has achieved primary importance in terms of providing detailed evidence (which also reduces the likelihood of the STA proposing adjustments). 

Article 23 of Royal Decree 1794/2008 related to mutual agreement procedures on direct taxation establishes that a taxpayer who has been formally and definitively sanctioned for a serious infringement (i.e. TP infractions) is not entitled to initiate any mutual agreement procedure, which may be provided for by an applicable tax treaty with the aim of eliminating any double taxation resulting from a transfer pricing reassessment.  

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Yes. As stated in question 1 above, the Spanish transfer-pricing regime was modified in order to align Spanish legislation with the standards included in the final report on Action 13 of the OECD BEPS project.  

In this regard, the CITR introduced in articles 13 and 14, among other modifications, the CbCR obligation which is applicable for tax periods commencing as of 1 January 2016.  

As stated in question 1 above, this obligation entered into force for tax periods commencing on or after 1 January 2016. In this regard, the corresponding Form (that will be approved by the Spanish Ministry of Finance) must be fulfilled within a 12-month period from the close of the fiscal year to which the CbCR refers (e.g. for fiscal year 2022, the CbCR should be filed by 31 December 2023). 

According to article 13 of CITR, CbCR must be submitted by resident entities in Spain considered as parent companies of a group within the meaning of article 18.2 of CITL, provided that they are not dependent on another resident or non-resident entity. 

Additionally, said obligation also applies to resident entities dependent on a non-resident entity not dependent on other entities, or the permanent establishments of foreign entities, when one of the following circumstances apply: 

1. No CbCR obligations exist (similar to the ones applicable in Spain) in the residence country of the parent company; 
2. Despite the existence of an international agreement within the meaning of EU Directive 2016/881 of 25 May 2016 with the country or territory in which the non-resident entity concerned is resident for tax purposes, there is no agreement on the automatic exchange of information between competent authorities in respect of such information with the said country or territory; 
3. Despite the existence of an automatic exchange of information agreement with Spain, the parent company did not comply with it systematically. 

Nevertheless, in general terms, there is no obligation to provide information by such subsidiaries or by permanent establishments in Spanish territory when the multinational group has appointed a subsidiary of the group that is resident in an EU Member State to submit the information, or when the information has already been submitted in its territory of tax residence by another non-resident entity appointed by the group. 

Any entity resident in Spanish territory that belongs to a group obliged to submit this information must notify the tax authorities, identifying and stating the country or territory of residence of the entity obliged to prepare this information (form 231).  

In this regard, note that, as stated in section A above, this obligation should not be fulfilled when the total turnover of the persons or entities belonging to a group is below EUR 750 million (article 14.1 of CITR). 

Yes. As noted in question 1 above, the amendments introduced in the Spanish transfer-pricing regime by the CITL and CITR, including the CbBR obligation, aim to align Spanish legislation with the standards included in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of BEPS project). 

Refer herein to question 1.4 above. 

Regarding the possibility of imposing penalties to local subsidiaries, it is not a clear-cut issue, but, in principle, if they are obliged to submit any type of documentation requirement and this obligation is not met, penalties may eventually be imposed. 

As previously noted, the CbCR obligation has been introduced in the Spanish legislation with effects from FY commencing on or after 1 January 2016. In this regard, there are still no tax treaties signed by Spain foreseeing the communication of CbCR with other jurisdictions. https://www.oecd.org/tax/beps/country-by-country-exchange-relationships.htm  

In September 2017, Spain signed the Multilateral Competent Authority Agreement for the automatic exchange of CbCR. 

In addition, other agreements have been signed by the authorities concerned, such as the Administrative Arrangement between Spain and US for the exchange of CbCR reports. 

In 2022, the Directive 2021/2101 of 24 November, has been transposed in Spain, which amends Directive 2013/34 regarding corporate income tax reporting by certain companies and branches. 

This obligation, which has a similar content as the CBCR currently in force, requires the publication of relevant information on the website of the Group and in the annual accounts. 

However, these new obligations will apply to fiscal years beginning on or after 22 June 2024. 

Yes. Companies exceeding certain thresholds must file Form 232 each year. 

In the report, the companies must include: (i) transactions with related persons or entities in general; (ii) transactions related to countries or territories considered tax havens, and (iii) transactions with related persons or entities where the revenues from certain intangible assets are reduced per the patent box regime. 

Form 232 must be filed within one month from the end of the ten-month period immediately following the close of the tax period to which the information to be supplied relates (e.g. when the tax period coincides with the calendar year, this form must be filed in November of the following year). 

This form must be submitted by the parties described in the previous section, provided that they exceed the following thresholds: 

• Transactions performed with the same related person or entity, where the consideration for all of such transactions in the same tax period exceeds EUR 250,000, based on their market value. 
• “Specific transactions” carried out in a given tax period (with one or more related parties) where the total amount of each of them exceed EUR 100,000. The following are considered specific transactions: 
  • 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 involving the transfer of business. 
  • Transfers of shares not traded on regulated markets or traded on regulated markets located in tax havens. 
  • Transactions involving real estate assets. 
  • Transactions involving intangible assets. 
• Transactions of the same type to which the same transfer pricing valuation method applies and were carried out with the same related person or entity, as long as the total amount of all operations within the same tax period is greater than 50% of the turnover of the entity, regardless of the amount of compensation received as a whole for the operations carried out with the same related person or entity. 

In addition to the above, note that the following transactions are not subject to Form 232: 

• Transactions carried out between companies forming part of a tax consolidation group. 
• Transactions carried out between Economic Interest Groupings (AIE)/Unincorporated Joint Ventures (UTE) and their members or other entities forming part of the same tax consolidation group as these (except where they are performed under the exemption regime for income obtained abroad via a permanent establishment). 
• Transactions carried out in the context of a takeover bid or a public stock offering. 

A penalty of EUR 20 for each item that should have been included, with a minimum of EUR 300 and a maximum of EUR 20,000 could be imposed. 

These amounts will be reduced by half in the case of returns filed after the deadline without any prior request from the STA. 

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