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TP Alert: Spanish Supreme Court rules on penalties for transfer pricing




Spanish Supreme Court rules on tax penalties applicable to TP reassessments in transactions exempt from documentation requirements


On 15 October, Spanish Supreme Court ruled that the specific transfer pricing penalty regime – including the penalty protection provision when the taxpayer prepares complete contemporaneous documentation – is only applicable to the related-party transactions subject to transfer pricing requirements. Furthermore, those transactions exempt of documentation requirements – i.e., when they total less than 250,000 euros per year and counterparty – could trigger the tax penalties regulated the General Tax Law for unpaid taxes or rejected NOL’s in case of TP reassessment by the Tax Authorities.


Spanish Transfer Pricing Regulations introduced mandatory transfer pricing documentation requirements for the related-party transactions carried out as from 19 February 2009. In this regard, the Regulations provide a series of exemptions for the TP documentation requirements. Currently, the following related-party transactions are exempt from TP documentation:

  • 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.

Additionally, a specific penalty regime was introduced in 19 February 2019. This TP penalty regime is tightly linked to the compliance with the TP documentation requirements. Currently, the TP penalty regimen provides:

  • Should the Tax Auditor do not propose a TP reassessment, the penalty is calculated by the sum of 1,000 euros per data and 10,000 per group of data (up to certain maximum limit), which are missing or false in the requested TP documentation;
  • When the TP documentation is not provided to the Tax Auditor, or it is incomplete, or it includes with wrong data, or reflects an arm’s length value different than the reported/booked value, the tax penalty would amount to 15% of the TP reassessment proposed by the Tax Auditor;
  • Penalty protection is only provided when the taxpayer fully complies with the TP documentation requiremets stated in the Regulations.

Supreme Court Resolution

On 15 October 2018, the Spanish Supreme Court has delineated the scope of application of the specific TP penalty regime – including the penalty-protection clause – regulated in the Spanish Corporate Income Tax Law, and the general tax penalty provisions regulated in the General Taxation Law. Summarily, the Spanish Supreme Court has stated the following criteria:

1.    The specific TP penalty regime is only applicable to the taxpayers subject to mandatory TP                         documentation requirements 2.    Under this specific TP penalty regime, penalty protection is only granted when the following three               conditions are met: 
  • The taxpayer has complied with the TP documentation requirements;
  • The transaction value reflected in the tax return is within the arm’s length range derived from the TP documentation;
  • That, although the reported value is within the arm’s length range reflected in the taxpayer’s documentation, the Tax Authorities have disagreed with the transfer pricing analysis and reassessed the transfer prices.
3.   Taxpayers exempt from the TP documentation requirements are out of the scope of the specific TP            penalty regime:;
  • Those taxpayers (transactions?) exempt of TP documentation requirements due to the quantitative exclusion (total transactions with each related party within the tax year does not exceed the threshold of 250,000 euros) are also excluded from specific TP penalty regime;
  • However, since the specific TP regime is not aplicable, the taxpayers exempt of TP documentation requirements cannot Benefit from the penalty-protection clause;
  • Furthermore, related-party transactions exempt from TP documentation requirements may give rise tax penalties regulated in the Spanish General Taxation Law, including the following (among others):
       a.) Tax penalty for unpaid taxes derived from the TP adjustments in transactions exempt from TP                    documentation, or
       b.) Tax penalty for reporting unsuitable tax credits when the TP adjustment reduces the taxpayer’s                  NOL’s.


The exemption from transfer pricing documentation requirements for certain related-party transactions is aimed solely at relieving tax compliance burdens for companies. However, such an exemption does not mean that companies should not make the same efforts to carry out an adequate transfer pricing policy and valuation criteria of such documentation-exempt related-party transactions.



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