Spain: Law modifying related-party transactions

Spain: Law modifying related-party transactions

In Spain, a recently enacted law (Law 27/2014) modifies the rules for related-party transactions and other transfer pricing measures. In terms of structure and content, new Article 18 of Law 27/2014 is broadly similar to the former provisions, but includes a significant number of amendments, most of which are technical clarifications. It appears there has been a clear attempt to adapt Spanish law to the base erosion and profit shifting (BEPS) project—even to anticipate the conclusions of various BEPS actions—as well as to interpret certain issues that have been viewed as controversial.

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Among the amendments that affect international related-party transactions in the new law are the following:

Scope of related-party transactions:  The rule for what interest ownership in capital is sufficient to be considered a related party has been set at a 25% participation (under prior law, it was a 5% interest). Also, a number of other factors were slightly modified. 

Documentation requirements: The new law does not include a full list of what must be included in the final content of the transfer pricing documentation. It may be possible that the documentation requirement will be reviewed, given the recently approved new chapter for the OECD Transfer Pricing Guidelines (in particular, the possibility of country-by-country reporting). The new law sets forth a higher limit for simplified documentation requirements that will apply to entities with a net turnover of less than €45 million (previously, €10 million)—a measure that may currently benefit about 9,000 companies.

Transfer pricing methods: Following the new OECD Transfer Pricing Guidelines, the hierarchy of methods has been replaced by the “best method rule.” Other non-specified methods in the OECD guidelines and generally accepted valuation techniques may be applied in particular transactions relating to intangibles or the transfer of businesses.

APAs: Advance pricing agreement (APA) rules include for the first time an extensive rollback provision. The period of an APA’s effectiveness is not modified (four years following the year of the agreement). However, the new provision provides that the APA can be rolled back to prior tax periods, provided these periods are not time barred or that a final settlement following a tax audit has not been fixed. This change is expected to resolve a number of procedural issues that resulted in certain difficult outcomes under prior law, and will increase efficiency in eliminating or avoiding double taxation, thus enhancing consistency and flexibility between APAs and mutual agreements procedures.

Secondary adjustment: For the first time, it may be possible to eliminate a secondary adjustment whenever the parties voluntarily agree to repatriate the excess profits, so as to enable the taxpayer to conform its accounts to the primary adjustment.

Penalty regime: The new regime rests on principles similar to those in former Article 16. Noncompliance with documentation requirements, either due to total lack of documentation or for false or incomplete documentation, triggers the penalty. The new provisions slightly reduce the amount of penalties when one data (penalty of €1,000) or set of data (penalty of €10,000 per omitted data) is incomplete or false. A cap now applies to limit the total amount of the penalty—10% of total transactions, or 1% of turnover, whichever is lower.

KPMG observation

Tax professionals in Spain view the new measures as a positive development, in that they aim to clarify or limit the disproportionate effects of some of the former transfer pricing provisions. Yet, some sensitive issues appear to require further interpretation or clarification, possibly in future legislation.


For more information, contact a tax professional in Spain with KPMG’s Global Transfer Pricing Services group:


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