2016 transfer pricing documentation requirements in Spain

Specific documentation requirements for related-party transactions stated in Law 27/2014, of Corporate Income Tax,

and the new Corporate Income Tax Regulations (Royal Decree 634/2015, on 10 of July)

1 www.especialistaspt.com

Contents

1 Ordinary transfer pricing documentation requirements ..................................................... 3

1.1 Documentation relating to the group (“Masterfile”) ...................................................... 3

1.2 Company’s specific documentation (“Local file”) ......................................................... 5

2 Simplified transfer pricing documentation requirements ................................................... 7

2.1 Simplified documentation for mid-size groups ............................................................ 7

2.2 Simplified documentation for small businesses .......................................................... 8

3 Exclusions to the transfer pricing documentation requirements ...................................... 9

4 Country-by-country reporting ............................................................................................... 10

5 Documentation on transactions with tax havens ............................................................... 11


NEW SPANISH TRANSFER PRICING DOCUMENTATION REQUIREMENTS On 1 January 2016, new transfer pricing documentation requirements entered into force in accordance with the transitional provision stated in the new Corporate Income Tax Regulations

(CITR)1.

The new provisions establish the content of the contemporaneous transfer pricing documentation, that Spanish resident taxpayers and permanents establishments placed in Spain are obliged to prepare and present to the Spanish Tax Authorities upon request in

compliance with article 18.(3) Spanish Corporate Income Tax Law (CITL)2.

The purpose of the new regulations is to adapt the Spanish transfer pricing documentation

requirements to the guidance recently issued by G20/OECD3. In this sense, the redrafted version of the Chapter V of the OECD’s Transfer Pricing Guidelines should be used in interpreting the new transfer pricing documentation requirements.

The new regulations provide different levels of documentation requirements depending on the size of the group to which the taxpayer belongs.

A complete detail of the new transfer pricing requirements could be found in the following sections.

1 CITR approved by Royal Decree 634/2015, on 10 July (Official Gazette 11 July). 2 Law 27/2014, on 27 November, of Corporate Income Tax (Official Gazette 28 November). 3 OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Chapter V, Documentation, as

replaced by the report titled “Action 13: Guidance on Transfer Pricing Documentation and Country-by-Country Reporting”.


1 Ordinary transfer pricing documentation requirements

In principle, a company belonging to a group of companies with a net turnover equal or higher than 45 million euros, is required to prepare the complete package of transfer pricing documentation. This documentation package consists of two files:

Documentation relating to the controlled transactions within the group (“Masterfile”).

Taxpayer’s specific documentation (“Local file”). This documentation package should be available to the review of the Spanish Tax Authorities since the end of the filing period for the Corporate Income Tax return. The content of each file is described as follows.

1.1 Documentation relating to the group (“Masterfile”)

a) Information relating to the structure and organization of the group:

General description of the group’s legal, organizational and operating structure, as well as any relevant change.

Identification of the different entities forming the group.

b) Information relating to the group’s business:

Group’s main activities, including the description of the main geographical markets, important drivers of business profits and the supply chain for those products and services representing at least 10% of the net turnover in the tax year.

Group’s functional analysis: general description of the functions performed, risks assumed and assets used by the different entities, including any change.

Description of the group’s transfer pricing policy, including the method(s) used to set up the intercompany prices.

List and brief description of the relevant cost-contribution arrangements and services agreements within the group.


Description of the business restructurings and acquisitions/cessions of relevant assets carried out during the tax year.

c) Information relating to the group’s intangible assets:

General description of the group’s global strategy for the development, ownership and exploitation of the intangible assets, including both the localization of the main R&D facilities and the management of the R&D activities.

List of the group’s relevant intangibles, including legal entity owning them and a general description of the applicable transfer pricing policy.

Amounts of the intragroup payments derived from the use of intangible assets, indicating the involved legal entities and their tax residence countries/territories.

List of intragroup agreements relating to intangibles, including, cost-sharing arrangements, main R&D services agreements and license agreements.

General description of any relevant transfer of intangible assets carried out during the tax year, detailing the involved legal entities, their residence countries and the amounts paid.

d) Information relating to financing activities:

General description of the group’s fund-raising activities, including the main financing agreements signed with external persons or entities.

Identification of the legal entities carrying on the main financing functions within the group, as well as their countries of incorporation and their place of its effective management.

General description of the group’s transfer pricing policy relating to the intragroup financing agreements.

e) Group’s tax and financial positions:

Group’s consolidated financial statements for the tax year.

List and brief description of the advanced pricing arrangements in force and any other ruling issued by any tax authority affecting to the cross-border allocation of profits within the group.


1.2 Company’s specific documentation (“Local file”)

a) Company’s information:

Description of the management structure, department chart and identification of the individuals/entities to which local managers must report, including the countries/territories where they reside for tax purposes.

Description of the company’s activities, business strategy and, in any, business restructurings or transfers/cessions of intangibles in which it has participated during the tax year.

Main competitors.

b) Information on the related-party transactions:

Detailed description of the nature, characteristics and amount of the transactions with related-parties.

Corporate name (or name and surname for individuals), tax address and tax identification number of the taxpayer and the involved related-parties.

Detailed comparability analysis, including: Specific characteristics of the property and services object of the related-party

transactions. Functional analysis: functions performed, risks assumed and assets used by

the parties involved in the related-party transactions. Contractual terms applicable to the transactions, considering the

responsibilities, risks and benefits assumed by each contracting party. Economic circumstances that may affect the related-party transactions, in

particular, the characteristics of the markets in which the property is sold or the services are rendered.

Business strategies.

Explanation on the transfer pricing method selection, including the description of the reasons underlying the choice, the procedure for its application, the selected comparables, and the resulting value or range of values.

If any, the cost-allocation criteria applied to intragroup services jointly rendered to several recipients and the applicable legal agreements, and the cost-contribution arrangements.

Copy of the advance pricing agreements in force and any other ruling issued by any tax authority relating to the related-party transactions.


Any other relevant information used by the taxpayer when setting up the intercompany prices.

c) Taxpayer’s financial information:

Company’s separate financial statements for the tax year.

Conciliation between the data used to apply the transfer pricing methods and the separate financial statements (P&L segmentation), when applicable.

Financial information of the selected comparables and source.

d) Information on the application of discounted free cash-flow methods

Detailed description of the selected valuation method or technique, as well as the reasons justifying the choice.

Magnitudes, percentages, ratios, interest rates, discount rates and other variables applied in the valuation.

Justification of the reasonability and consistency of the critical assumptions relating to historical data, business plans or any other essential element for the correct determination of the value and its consistency with the arm’s length principle.

Reports, documents and computer files needed for the verification of the correct application of the valuation method and the resulting value.


2 Simplified transfer pricing documentation requirements

The new regulations provide simplified documentation requirements for a company belonging a group with a net turnover under 45 million euros (SMEs). Firstly, this company is not obliged to prepare the documentation relating to the group (“masterfile”). On the other hand, two levels of simplification may be applicable for the company’s specific documentation (“local file”).

2.1 Simplified documentation for mid-size groups

A company belonging a group with a net turnover exceeding 10 million euros but under 45 million, is allowed to prepare only the following documentation:

Description of the nature, characteristics and amount of the related-party transactions.

Corporate/full name, tax address and tax identification number of the taxpayer and the involved related-parties.

Identification of the selected transfer pricing method.

Selected comparables and the value or range of values. Notwithstanding the above, the following “high-risk transactions” cannot benefit from the simplification and should be documented according to the ordinary requirements:

a) Transactions between resident individuals carrying on economic activities taxed according to the simplified income tax regime and entities in which those individuals, their spouses, children or parents own at least 25% of the equity.

b) On-going business transfers. c) Transfers of shares or participations in non-quoted companies or companies quoted in

tax havens. d) Transfers of real estate property. e) Transactions relating to intangible assets.


2.2 Simplified documentation for small businesses

A company belonging a group with a net turnover under 10 million euros is just obliged to file a tax return with the following content:

Description of the nature, characteristics and amount of the related-party transactions.

Corporate/full name, tax address and tax identification number of the taxpayer and the involved related-parties

Identification of the selected transfer pricing method.

Arm’s length value or range of values. However, the company must prepare ordinary documentation in case of “high-risk transactions”, as mentioned above.


3 Exclusions to the transfer pricing documentation requirements

In any case, the following related-party transactions are excluded of the documentation requirements:

Those carried on between companies forming the same tax consolidation group (“tax unity”). This exclusion does not apply to the intragroup cessions of intangible assets benefiting from the “patent box” regime.

Those carried on between an Economic Interest Grouping (EIG) or Temporary Consortium and its members (or other companies being part of the same “tax unity” of its members). However, this exclusion does not apply to the transactions with permanents establishments abroad of a Temporary Consortium.

Those transactions carried on in the framework of a supervised public offering for sale or buy-out of securities.

Those transactions carried on with the same person or entity, when they are worth less than 250,000 euros in total per year.


4 Country-by-country reporting For those tax years starting 1 January 2016, a “country-per-country reporting” must be filed by those groups with a net turnover exceeding 750 million euros in the previous 12 months. A Spanish resident company is obliged to file the country-by-country reporting in the following cases:

a) When it is the ultimate parent company of the group (ie. it is not dependent of another company).

b) When it has been appointed to prepare and file this reporting by its non-resident parent company.

c) When a similar country-by-country reporting is not applied in the country of residence of the group’s parent company.

d) When there is not an automatic information exchange agreement relating to this reporting with the country of residence of the group’s parent company.

e) When the automatic information exchange agreement covering this reporting has been systematically breached by the country of residence of the group’s parent company.

The country-by-country reporting return will include the following information:

Gross revenues, broken down between intercompany and third-parties.

Pre-tax profits/loss.

Corporate income tax paid, including withholding taxes.

Accrued expense for corporate income taxes.

Capital and equity at year-end.

Average personnel.

Tangible assets and real estate investments, other than cash and accounts receivable.

List of resident entities, including permanent establishments, and the main activities carried on by each of them.

Other relevant information and, if any, an explanation of the data included in the reporting.

This tax reporting should be filed within the 12 months after the tax year end. A resident company which is not obliged to file this country-by-country reporting, should inform the Spanish Tax Authorities about the group’s company which is obliged to comply with this obligation and its country of tax residence.


5 Documentation on transactions with tax havens The abovementioned documentation requirements are also applicable to the transactions carried out with (related-party or third party) persons or entities resident or domiciled in countries or territories included in the blacklist of tax havens. However, the following rules are also applicable in this case:

The exclusion for those transactions totalling less than 250,000 euros with a same person is not applicable when that person resides in a tax haven.

Transactions with related parties residing in the EU or in the EEA, when effective exchange of information exists, are excluded of documentation if the taxpayer may evidence valid economic reasons to carry on the transactions and the tax haven’s counterparty carries on a business activity.

The documentation about the identification of the related parties must also include the identification of the intermediaries and, in case of entities, the directors.

In case of international trade of products, commissions and other associated expenses with third parties residing in tax havens, transfer pricing documentation should not be required when:

1) The taxpayer evidences that the transactions are carried on by valid economic

reasons, and 2) The taxpayer carries on comparable transactions with third-parties residing in

non-tax haven jurisdictions, and the prices agreed in both types of transactions are similar

Especialistas en Precios de Transferencia is an independent firm of

experts in transfer pricing (related-party transactions) operating in Spain

since 2010.

Our team of professionals comes from Big4 firms and is lead by Ms

Claire Sanga, who has more than que 15 years of experience in the

transfer pricing area at PwC, both in Spain and in the United Kingdom.

We provide transfer pricing advisory, valuation and documentation

services to:

Legal, tax and accounting firms looking for a reliable, efficient

business partner to complete the service offering to their clients at

the highest quality standards.

Domestic and international groups of companies looking for

efficient, flexible and highly professional approach to attend their

needs of transfer pricing advising and/or compliance services.

We are committed to professionalism, independence and pro-activity in

the services that we provide, with the security and confidence of

achieving a great added value for our clients by way of firm results. This

translates to practical, intelligent and mutually beneficial solutions and

services, adapted to the current market conditions and those of our

client.

www.especialistaspt.com

Contact details:

Av. de Brasil nº 29 - 1º.

28020 Madrid

Phone: +34 911920016

E-mail:

[email protected]

2016 transfer pricing documentation requirements in Spain

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Transcript of 2016 transfer pricing documentation requirements in Spain