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Spain: Tax authorities disregard third-party’s remuneration by using secret comparables



Mario Ortega

Alberto Ameneiro

On October 3 2013, the Spanish Central Economic-Administrative Tribunal (TEAC) handed down its decision on the withholding tax assessment issued by the Spanish tax authorities to a Spanish bottler/distributor on presumed royalty payments made under a concentrates procurement agreement with a third-party US producer of soft drinks. The most remarkable aspect in this decision is that the TEAC confirmed the tax authorities' power to reassess, at least partially, the attribution and characterisation of a consideration – business versus royalty income – paid pursuant to a contract between independent parties, based on general anti-abuse rules, presuming that the price paid by the distributor remunerated not only the purchase of goods to produce the concentrates but also the right to use the trademarks in this respect.

To determine the portion of the consideration that should be attributable to the use of trademarks, the tax authorities applied the methodologies contained in the OECD Transfer Pricing Guidelines for valuing intra-group transactions, even though the assessed transaction was carried out between unrelated parties.

In this regard, the valuation analysis made by the tax inspector relied on information requested from two companies which performed the activity of processing and packing soft drinks and juice for unrelated entities, and relating to the cost of raw beverage bases and the profitability obtained by those companies, without properly identifying them (claiming confidentiality of the companies whose data were considered).

However, in the decision, the TEAC rejected that last circumstance (not the use itself of secret comparables, but the lack of disclosure to the taxpayer) and overturned the valuation made and the tax assessment issued by the tax examiners.

In this decision, the TEAC seems to imply that it would have accepted the use of secret comparables if the taxpayer had been given enough information to challenge the process followed to select the comparables and their reliability, even where they were primarily chosen by the tax inspectors from a secret file or through a procedure unavailable to the taxpayer.

Thus, in view of this TEAC decision, the tax authorities' use of information which is not strictly public, this is to say, unavailable to any taxpayer performing a transfer pricing analysis to justify the arm's-length nature of its policies, seems to be permitted in Spain, provided that its main features are disclosed in the course of the assessment so that the taxpayer is able to know (and oppose) them before the issuance of the final tax assessment.

Moreover, in light of the above, multinational enterprises should review their supply chain structures, mainly when intangible assets are involved (both commercial and marketing), and irrespective of whether or not the transactions are carried out with related parties, to ascertain that all their transactions are correctly identified, valued, and treated for tax purposes.

Mario Ortega ( and Alberto Ameneiro (
Garrigues Taxand

Tel: +345 145 200

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