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Spain revises transfer pricing policy on intra-group services


Mario Ortega Calle, of TP Week correspondent Garrigues, explains how the regulation of intra-group expenses has changed

In-depth changes have been made to Spanish transfer pricing legislation in order to bring it into line with international practices and with the recommendations of the EU Transfer Pricing Forum. These changes took effect for the fiscal years commencing on and after December 1 2006.


In particular, one of the issues which has been the subject of reform, in line with the OECD guidelines, is the regulation of intra-group services. Thus, the deduction of expenses from this kind of services is conditional on such services being of advantage or of use to their recipient, something which has traditionally been a de facto requirement for the deductibility of intra-group expenses in Spain.

The prior legislation, which was more formal in its approach, also required that the amount of these expenses be established in a written contract executed prior to the provision of the services. Such contract had also to include the method for allocating the expenses, having regard to the principles of continuity and reasonableness.

The new wording not only eliminates the need for the existence of the contract, but also permits the possibility of using indirect methods for allocating the consideration among the entities receiving the services, where it is not possible to individualise the service received or quantify the factors determining its remuneration.

And, also, the concept of advantage or usefulness for the recipient is key, in that the method chosen must take into account, among other factors, the benefits that recipients obtain or may obtain from the services.


These changes, in addition to aligning Spanish legislation with international practices (it must be borne in mind that Spain has traditionally been an importer of services of this kind), may signal a change in trend in the approaches traditionally taken by the Spanish tax authorities when inspecting these kinds of expenses.

Specifically, Spanish tax inspectors have usually focused on purely formal aspects when it comes to questioning the deductibility of expenses borne by Spanish subsidiaries of multinational groups in respect of intra-group services, such as the absence of a written contract signed before receiving the services, the lack of evidence of the actual provision of the services, the treatment of the services as shareholder activities or duplicated services, the lack of support for the expenses allocated or the questioning of the fiscal year in which they were recorded by the Spanish entity.

However, the Spanish tax authorities have seldom addressed, to date, more technical aspects relating to the valuation of the services provided, such as the possible existence of a comparable uncontrolled price for the services analysed, the determination of the costs incurred in providing them, or the profit margin that is considered in line with the arm’s-length principle in each case.

The regulation introduced for this kind of servicesp, coupled with the new obligation on taxpayers to evidence, through the appropriate documentation (pending approval), that the services have been valued at arm’s length, means that inspectors are already analysing with more severity and detail not only the formal aspects of providing the services, but also the issues relating to the method applied and, above all, to the valuation agreed on.

In this respect, it is fundamental for multinational groups that provide management support services to their Spanish subsidiaries to pay attention not only to the issues that affect the aspects relating to their valuation, such as the functions and risks assumed by the provider, the correct application of the method used to determine an arm’s-length price and the methods used to allocate them among the different recipient entities, but also to formal aspects such as evidencing that the services were actually provided and, especially, that they are of advantage or of use to their recipients.

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