In the post hereby, I am going to point out the amendments introduced in the new Spanish transfer pricing regulation, by the enactment of the Royal Decree 634/2015.

The main amendments in the Royal Decree are the following:

  1. Related to the comparability analysis, for the market value:

* It must be taken into consideration the nature of the related transactions and the conduct of the related parties to identify the conditions of the transactions.

* It must be taken into account any relevant taxpayer’s economic circumstances (loss, business strategies, tax rulings and tax decisions of public authorities, synergies,…) facing the comparability analysis .

* The use of statistical measures are allowed, in order to minimize the risk of error due to the existence of defects in the comparability, after the process of selection of comparable, when it has been obtained a range of values according to the arm´s length principle.

  1. Related to the compulsory documentation and its content:

* The transfer pricing compliance burden has been increased: multinational enterprises (MNE’s) will now have to gather and provide substantially more information on their global transactions than before. The obligation for some MNEs, to comply with the Country-by-Country report by 1st January 2016, is introduced, and its content statutory regulated. Also, the new requirements for both the master file and local documentation are relatively prescriptive and will require MNEs to collect a considerable amount of information that has not been collected in the past. Also, it is set a new simplified regime for medium companies and a very simplified regime for small companies.

* According to the Spanish statutes, the CbC report will most likely be prepared by large MNE with a group´s net earnings at least 750 Mill€, and will report of the global income, earnings before taxes, earnings after taxes, taxes accrued and taxes paid, equity capital, employees, assets held, and certain measures of the economic activity, of the whole group, in each country.

* The master file will provide further information of companies above 45 Mill. € of income. The content of this file would consist in the MNE’s organizational structure, a detail of the description of the MNE’s business or businesses, Intangibles held, Intercompany financial activities, and the Financial and tax position. Those entities, belonging a group of less than 45 Mill. € of income, are exempt of submitting this file.

*In relation with the tax payer’s local file, this compulsory documentation has been broaden, depending on the net earnings of the group to which the tax payer belongs:

> When the net earnings are higher than 45 Mill.€, tax payers have to prepare a local file, which has been extended compared to the previous regulation, containing information of the following: management structure, fully description of the tax payer’s business and activities, business strategies, restructuring transactions (mergers, spin-offs, etc..), transactions with intangibles or IP, competitors in the market, detailed information of tax rulings, tax payer’s financial and economic information.

> When the net earnings are between 45 Mill€ and 10 Mill€, the tax payer must prepare a simplified documentation, which content has been slightly minored.

>When the net earnings are below 10 Mill€, the tax payer must prepare a very simplified documentation, describing the nature and value of the related transactions, the participant related parties and the selection process of the valuation methods.

  1. Related to the valuation verification:

* The possibility to resolve tax disputes through a mutual agreement procedure (MAP) according to the double tax treaty, in order to eliminate the double taxation of the transfer pricing adjustment.

  1. Related to the secondary adjustment:

* The possibility of the patrimonial restitution (referred as “repatriation” by the OECD) procedure between related parties, is considered as an option to avoid the secondary adjustment.

  1. Subordination of the Spanish tax rule to the international standards:

* In the introductory part, both in the Law and in the statutes, it is stated that the Spanish transfer pricing regulation is being interpreted according to the OECD Directives on transfer pricing, as well as the Recommendations and Communications of the Joint Transfer Pricing Forum, only if these interpretations are not against the local rules.

 As it could be seen, the changes are variuos, but they are in line with the OECD recommendations.

In the following post, I would write about the current status of the new spanish transfer pricing rules.



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