Starting fiscal year 2016, new transfer pricing documentation requirements are applicable in Spain, since the new Corporate Income Tax Regulations are adapted to the new OECD’s transfer pricing documentation package approved in the framework of the BEPS Project.
These transfer pricing documentation requirements are applicable to both Spanish companies and branches or permanent establishments (PE’s) of foreign companies operating in Spanish territory.
Those taxpayers belonging a group of companies having a total turnover equal or exceeding EUR 45 million, are obliged to prepare and keep at the disposal of the Tax Authorities an exhaustive set of transfer pricing documentation in accordance with the OECD’s recommendations, consisting in the following packages:
1. Documentation relating to the Group (“Masterfile”). This block of documentation should include information on:
- Information about the structure and organization of the group, including the identification of the various entities that form part of the group.
- Information about the activities of the group, including a functional analysis of the whole group, the description of the value chain of those product/service lines involving at least 10% of the net turnover, the transfer pricing policy, the relevant cost-sharing arrangements and services agreements, as well as business reorganisations.
Information about the intangible assets of the group, including the development, ownership and exploitation policies, the location of the main R&D facilities, the identification of relevant intangible assets and applied transfer pricing policy.
Information on financial activity, including sources of external funding and policy of distribution of funding within the group.
Group’s financial and tax positions, including the consolidated financial statements and a list of APAs and tax rulings in force within the group.
2. Spanish taxpayer’ specific documentation (“Local file”). This block must include information on:
- The taxpayer’s information, including the management structure, organization chart and internal reporting lines, the description of activities and business strategy, and major competitors.
- Analysis of transfer pricing of the related-party transactions, including its detailed description, full tax identification of counterparties, a detailed comparability analysis and justification of the method of valuation, selected from among the regulated in corporate income tax law, the description of the search for comparable uncontrolled transactions/companies and their results, cost allocations in case of cost-sharing arrangements or services agreements and the corresponding intragroup contracts, as well as a copy of the APA’s and tax rulings that applied to the Spanish taxpayer.
- Taxpayer’s financial information, including their annual financial statements, P&L accounted segmented controlled and uncontrolled transactions and the financial data of the “comparables” used.
These new transfer pricing documentation requirements are much more exhaustive than those applicable in the previous tax years. Then, an increase of scrutiny of the transfer prices applied within both domestic and multinational groups are probable in the coming years.
This documentation must be available for the tax administration before the conclusion of the voluntary deadline for submission of the corporate income tax return.
The mere absence of the transfer pricing documentation –or presenting the documentation with omissions or mistakes– implies tax penalties amounting to 1,000 euros for “data” or 10,000 euros for “data set”, according to the definitions stated in the regulations. Although the total amount of the sanctions will depend on the operations of each taxpayer, you can easily exceed the 250,000 euros for a standard company.
However, the absence of documentation (or a defective documentation) may also imply that a potential transfer pricing adjustment is also sanctioned with a tax penalty of 15% of the adjustment amount. Therefore, a complete, correct transfer pricing documentation is a key point in avoiding tax penalties in an eventual transfer pricing controversy with the Spanish Tax Authorities.