As an OECD member, Spain played an active role in all of the debates on BEPS Action Plan items. The Spanish government aims to implement most of the BEPS recommendations in domestic law, and representatives of the Spanish tax authorities have taken opportunities to explain the potential impact of the BEPS Action Plan on domestic legislation at many public events in Spain.
Modifications to Spanish tax law have already been enacted, either as part of Spain’s new Corporate Income Tax Law, which took effect on 1 January 2015, or through measures introduced earlier. Some of these new rules may be amended in line with the OECD’s final package of recommendations.
The Spanish tax authorities have been quick to bring anti-BEPS concepts into their increasingly aggressive audit practices. In fact, it is not uncommon for Spanish tax inspectors to raise tax abuse and anti-avoidance rules quite early in the audit process. Cross-border financial expenses of every kind have been particular audit targets in the past few years.
More recently, this aggressive scrutiny has spread to other, more complex payments and transactions. The Spanish tax authority’s published audit focus includes transactions involving transfer pricing issues, treaty interpretation and cross-border transactions in general. In 2013, Spain’s strengthened its transfer pricing capacity by creating a new office within the tax administration that is exclusively dedicated to issues involving transfer pricing and intangibles.
Spain has not issued any rules requiring mandatory disclosure of tax planning, although the general anti-avoidance rule in the Spanish General Tax Law could be used to that effect. Nevertheless the current hostility toward aggressive tax planning among the media and the public is causing some companies in Spain to share the details of their tax payments voluntarily to preempt any negative publicity. For the same reason, some Spanish companies have taken steps to wind down some tax planning structures or exit low-tax jurisdictions, even where a supportable business rationale and real substance exist.
Spain is one of the first countries to modify its domestic law to introduce mandatory CbyC reporting for transfer pricing documentation, and Spanish companies will need to issue their first CbyC reports in 2016. The Spanish law meets all of the requirements imposed by OECD in terms of deadlines, implementation and sanctions for non-compliance.
A number of Spanish anti-avoidance rules target dealings with companies resident in harmful tax regimes, and many of these rules apply specifically to 48 countries included on Spain’s blacklist. Spain has been working to broaden its network of tax treaties and tax information exchange agreements, and countries having such an agreement with Spain are automatically excluded from the blacklist.
As a result of new tax agreements with 13 countries, Spain removed them from the list. Pending agreements with another six countries are expected to reduce the list further.
Spain’s current tax treaty policy is to negotiate the inclusion of limitation on benefits clauses.
Under Spain’s treaty policy, anti-hybrid provisions are also sought. Spain has unilaterally introduced measures to adjust the tax treatment of hybrid entities and instruments.
Spain is expected to sign the OECD’s multilateral instrument being developed under Action 15 that will allow countries to update all their bilateral tax treaties in line with the OECD proposals. Once the instrument takes effect, companies that are relying on Spain’s treaty network will need to determine by country which treaties are affected and the impact of the new treaty provisions. Since Spain currently has more than 80 bilateral tax treaty partners, this will be an extremely complex exercise, especially if individual countries sign the multilateral instrument on different dates.
As of 1 January 2015, Spain’s previous CFC rules are much more restrictive, requiring (among other things) additional substance in the foreign CFC. The effect of this new legislation is still uncertain.
Spain imposed strict rules for interest deductibility before the OECD’s BEPS discussions commenced. Anti-abuse rules have been in place for many years to limit the deductibility of not only interest but also other payments. The new Corporate Income Tax Law introduces new rules further restricting the tax deductibility of interest payments under a profit participation loan.
As the OECD BEPS discussions advance, the government is considering more restrictive rules regarding tax deductibility.
Spain has not moved to legislatively amend its concept of PE to date. However, the country’s tax authorities are taking a more economic approach to the PE definition in both theory and practice and are taking stricter positions on the related tax treatment.
In its domestic law, it appears that any modifications introduced by Spain in the future would follow any PE concept that the OECD ultimately proposes (e.g. in article 5 of the OECD Model Tax Convention or the related commentaries).
Increasing audit activity and changing, complex rules are increasingthe volume of tax disputes, and international companies in Spain are advised to make full use of the Spanish tax authorities’ dispute resolution procedures. These include advance tax rulings, pre-audit consultation meetings and APAs that provide certainty over the acceptability of a company’s transfer prices. The Spanish tax authorities have added more resources to improve the APA program, and taxpayers are achieving better outcomes more quickly as a result.
As of 2016, Spain is shifting responsibility for its Mutual Assurance Program from the Ministry of Finance to the Spanish Tax Agency. Currently, taxpayers are seeing their tax disputes resolved more efficiently through the MAP than through Spain’s court procedures. Hopefully, the relative flexibility and efficiency of the current MAP will be retained after the change in administration.