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Spain: Latest developments on transfer pricing legislation in Spain



Mario Ortega Calle

Iñigo García Fernández

The Spanish government has recently approved a major amendment to the Corporate Income Tax Law (CITL) where important modifications have been included regarding transfer pricing, in alignment with the latest transfer pricing developments in the OECD's base erosion and profit shifting (BEPS) project. The necessary ownership interest in a subsidiary in order to be considered 'related parties' has been increased from 5% to 25%, directly or indirectly.

Other substantial modifications have been included such as the elimination of relatedness where members are deemed related to each other simply because one of them forms part of a business group with the entity in which they both have ownership interests. Additionally, the remuneration paid by an entity to its directors (both official directors and those acting as such) for their activities is no longer treated as a controlled transaction.

The option to elect simplified documentation rules has been broadened (implementing regulations have yet to be passed) in relation to related persons or entities with net revenues below €45 million ($48 million). The previous limit was €10 million.

Following the criteria previously defined by the OECD Transfer Pricing Guidelines for Multinational Enterprise and Tax Administrations (OECD guidelines), the CITL eliminates the valuation methodology hierarchy to determine an arm's-length price. It also provides for the possibility to apply other valuation methodologies.

The activities that the tax authorities can carry out have generally been broadened. Whereas the former law authorised the tax authorities to review that the transactions performed between related parties were priced at arm's-length, the CITL states that they may also review the nature of the intercompany transactions.

A new provision has been added requiring taxpayers with permanent establishments abroad to include in their tax bases the estimated income, calculated on an arm's-length basis, that will be obtained on domestic transactions performed with these establishments, although on condition that this is allowed by an applicable tax treaty. In this regard, to date, none of the treaties signed by Spain allow that option, although it may appear in the ones signed or renegotiated in the future.

A new option has been included allowing the secondary adjustment not to be made when the differences arising from the incorrect pricing on an arm's-length basis of a given controlled transaction are restored. The CITL clarifies that this restoration will not determine the existence of income at the affected parties.

Additionally, attention must be paid to the modifications related to advance pricing agreements (APAs). The new CITL increases the range of application of APAs to previous fiscal years as long as they are not statute barred, taking as reference the year when the APA is agreed.

The penalty regime has also been modified by lowering the penalties applicable in case of tax infringement related to the provision of an incomplete or inaccurate documentation or to the need of pricing adjustments in the intercompany transactions. The most important amendment in this regard relates to the arm's-length value determined for corporate income tax (CIT), non-resident income tax or personal income tax purposes having no effect on other taxes, and vice versa.

The obligation to price and document transactions performed with persons or entities resident in tax havens remains and the option to use the value agreed by the parties if a higher amount of tax results in Spain has been removed.

Lastly, further to the OECD developments on the BEPS project and, more specifically, regarding country-by-country reporting, the Spanish Tax Administration has recently publicly announced that Spain will introduce new transfer pricing documentation requirements in the upcoming CIT regulation that will address the developments in the CITL.

Given the importance of the changes introduced (and those to come very soon), taxpayers in Spain should carefully review their transfer pricing policies and supporting documentations to ensure these are fully compliant with the new regulations.

Mario Ortega Calle ( and Iñigo García Fernández (

Garrigues – Taxand, Madrid


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