The main rules in Spain governing transfer pricing are:

• Act 27/2014 on Corporate Income Tax, hereinafter “CIT Act”; and
• Royal Decree 634/2015 on Corporation Tax Regulations.

On 30 November 2006, Act 36/2006 of 29 November on Tax Fraud Prevention Measures was published in the Spanish Official Gazette, which provided for the obligation to value on arm’s length basis transactions carried between related entities or persons. This Act is in line with the recommendations of the European Union Joint Transfer Pricing Forum and the principles laid down by the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines.

Additionally, on 28 November 2014, Act 27/2014 of 27 November on Corporate Income Tax was published in the Spanish Official Gazette. The transfer pricing rules included in the CIT Act cover both companies and individuals. In this sense, transfer pricing rules apply to CIT, personal income tax and non-resident tax. In accordance with either the Spanish accounting principles and the CIT Act, controlled transactions carried out by related parties must be valued on an arm’s length basis.

On 10 March 2021, the Official Gazette published the Royal Decree-Law 4/2021 of 9 March 2021, transposing Council Directive (EU) 2016/1164 of 12 July 2016, amended by Council Directive 2017/952 of 28 May 2017 (ATAD II Directive), as regards “hybrid mismatches”, and amends the CIT Act and non-resident income tax Act.

This Royal Decree-Law 4/2021 introduces a new Article 15.bis in the CIT Act regarding “hybrid mismatches”. This new article establishes the situations in which expenses derived from related transactions are not tax deductible because of a different tax characterisation of the expenses or transaction.

This new legislation came into force on 11 March 2021 and applies for periods that commenced on or after 1 January 2020 that have not ended on that date.

On 29 February 2024, Spanish Authorities published the general guidelines of the Tax and Customs Control Plan for the fiscal year as of 2024. In these guidelines, the Administration provides that it will be a special point of attention for the proper application of the OECD Transfer Pricing Guidelines by the multinational groups.

It can be said, when the current transfer pricing legislation was approved in 2006, the capabilities and knowledge of the Spanish tax authorities and tax professionals were not sufficiently developed to be able to apply the law properly. Now, things have changed, and transfer pricing is a significant matter for the attention of the companies and other economic players.

It should also be noted that the EU is planning to develop a Directive of transfer pricing to harmonise the legislation of the members of the Union about this issue. However, there is still not a fixed date for its entry into force.

Corporate Income Tax Act establishes that associated/related persons or enterprises shall mean:

• an enterprise and its shareholders or participants;
• an enterprise and its directors or administrators (although the remuneration received by directors or administrators solely for the exercise of their functions is excluded from consideration as a related transaction);
• an enterprise and the spouses or persons united by kinship relations, in direct or collateral line, by consanguinity or affinity up to the third degree of the shareholders or participants, directors or administrators;
• two enterprises that belong to a group;
• an enterprise and the directors or administrators of another enterprise, when both enterprises belong to a group;
• an enterprise and another enterprise in which the former has an indirect shareholding of at least 25% of the share capital or equity;
• two enterprises in which the same shareholders, participants or their spouses, or persons united by kinship relations, in direct or collateral line, by consanguinity or affinity up to the third degree, participate, directly or indirectly, in at least 25% of the share capital or own funds; and
• an enterprise resident in Spanish territory and its permanent establishments abroad.

The association is defined based on the relationship between the shareholders or participants and the enterprise, the participation must be equal to or greater than 25%. The reference to administrators will include both de jure and de facto administrators.

The Corporate Income Tax Act also details that a group exists when an enterprise holds or can hold control of another or others according to the criteria established in Article 42 of the Commercial Code (eg, 51% of voting rights), regardless of its place of residence and the obligation to file consolidated annual accounts.

However, there are some exceptions to the application of the transfer pricing rules, such as:

• the remuneration paid by an entity to its directors in the performance of their functions; and
• shareholder transactions such as dividends and capital contributions, as the CIT Act stipulates a specific valuation rule for those transactions.

The five transfer pricing methods accepted by the OECD have been adopted under Spanish legislation. As of fiscal year 2015, the CIT Act does not state a priority in the application of transfer pricing methods and they would be selected depending on the nature of the controlled transaction, the availability of reliable information and the degree of comparability between controlled and uncontrolled transactions.

The following are the definitions of the five prescribed methods as listed in Article 18 of the CIT Act.

Comparable Uncontrolled Price (CUP) Method

In this method, the price of the product or service in a transaction between related parties is compared with the price of an identical product or service or one with similar characteristics in a transaction between independent persons or enterprises in comparable circumstances. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

This method is applied when there are many transactions of the same type with similar prices, and it shows the most similar price to market value.

Cost-Plus Method

In this method, the markup normal in identical or similar transactions with independent parties is added to the purchase price or cost of production of the product or service, or, failing this, the markup applied by independent parties to comparable transactions. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

This method is commonly applied for the purchase and sale of semi-finished goods and provision of services.

Resale Price Method

In this method, the markup applied by the reseller itself in identical or similar transactions with independent parties is subtracted from the sale price of a product or service, or, failing this, the markup applied by independent persons or enterprises to comparable transactions. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

This method is applied in commercialisation and distribution activities between related parties.

Profit Split Method

In this method, each associated party carrying out jointly one or more transactions is allotted part of the common profits resulting from the transaction or transactions, provided that this reflects what independent parties would have done in the same circumstances.

This method is used when the transactions are highly related, and it is not possible to analyse them separately. It is also applied when the operations add intangible value.

Transactional Net Margin Method

In this method, the net profits are allotted to the transactions carried out with an associated party, calculated based on the most appropriate base (costs, sales or assets) depending on the characteristics of the transactions, which the taxpayer or third parties would have obtained in identical or similar transactions carried out between independent parties. Where applicable, the necessary adjustments should be made to obtain an equivalent and to take into account the specific nature of the transaction.

This method is applied generally in transactions with data bases.

CIT Act provides for the possibility that, if none of the methods previously discussed were applicable, any other generally accepted valuation methods and techniques that respect the arm’s length principle shall be used, eg, the Discounted Cash Flow (DCF). However, it is not a common situation.

The selection of the valuation method would depend on, among other factors, the character of the related-party transaction, the accessibility of available information, and the level of comparability between related and unrelated transactions.

The Spanish Tax Authorities usually consider that, in practice, perfect comparables do not exist and hence they always try to apply the median resulting from their benchmark.

In this field the Spanish Tax Law is totally aligned with the OECD and, despite comparability adjustments are not frequent, they are perfectly accepted when they result in a comparability improvement.

Financial result adjustments and working capital adjustments are the most common adjustments.

Spain has traditionally been an importer of intangibles rather than an exporter. Spanish taxpayers are usually audited on the royalties paid and the fees obtained by intellectual property. There is not a special rule for valuating transfer pricing on intangible transactions. However, all OECD criteria have been accepted and applied for valuating these types of intangible assets transactions.

Spanish legislation does not have any special rule regarding hard-to-value intangibles.

Spain recognises the cost sharing agreement. In case these agreements are signed, the following information is required.

• Persons or entities signing the agreement shall have access to the property with similar economic consequences to the assets of the agreement that may be acquired.
• The contribution made by every participant must be valued in line with the utility obtained by the agreement.
• The agreement must foresee the compensation in the case of a change in the circumstances.
• Information about the participants – group structure, activities that are carried out and countries where other participants are established.
• Information about the activities and projects that are covered by the agreement.
• Duration of the agreement.
• Criteria used to quantify the profits distribution.
• Responsibilities of every participant.
• Consequences of being part of the agreement and for quitting it.

Once CIT tax return is submitted and an additional adjustment shall be included in the CIT tax return, it must be made by rectifying or complementing the former tax return.

According to Spanish Accounting Principles fair market value should be applied when preparing the company’s financial statements; thus, any adjustments based on transfer pricing principles would also entail an adjustment to the financial statement.

Rectifying tax return could be submitted when a higher amount has been paid or a lower amount has been declared. The submission of any of these tax returns out of the deadline could imply a sanction and a surcharge.

All Double Taxation Treaty (hereinafter, DTT) signed by Spain have a clause of information exchange; the only country that did not include this clause in the DTT was Switzerland, but it was added in 2007.

The information shared with other jurisdictions according to DTT would be related to taxes agreed under the DTT.

Furthermore, the EU has developed the Directive 2011/16/EU for the administrative co-operation in tax field, providing for information exchange such as:

• financial account;
• tax rulings;
• country-by-country report; and
• prevention of money laundering.

This Directive envisages the possibility of some countries working together, controlling some companies with transactions in the jurisdictions involved. Within the European Union, a taxpayer can even be audited by some countries jointly.

In this sense, Spain has signed multilateral agreement with around 107 countries on automatic exchange of financial information. This agreement provides information about ownership, bank balance, dividends, interests and other capital income.

APAs are accepted by the Spanish legislation.

An APA must be granted by the International Tax Office within the Spanish Tax Agency. The APA could be unilateral, bilateral or multilateral. The APA can imply the agreement about the transfer pricing method for related parties’ transactions, the profit level indicator and/or the level of profit.

The taxpayer must submit a formal request before Spanish Tax Agency, that is required to analyse it, negotiate with rest of the competent authorities – when other jurisdictions are involved – and accept or reject the request.

Tax Agency has a period of six months to express the opinion on the application of the APA. In case there is not an answer in the mentioned period, the proposal must be understood as rejected. However, and despite the mentioned six months period, the length of an APA approval usually lasts between one and two years.

The APA and de Mutual Agreement Procedure (hereinafter, MAP) are two different procedures and there is not co-ordination between them.

It is worth mentioning that the tax office dealing with both, APA and MAP, is the same; thus, although there is not co-ordination, certain level of knowledge would exist.

The process for reaching an agreement MAP does not have a maximum length, but recent improvements have made the process faster.

All related entities are allowed to request for an APA and the application must include the following information: entities involved in the transactions, transactions description and main items to be considered when valuating the operations according to arm’s length principle, including the method selected and the analysis for its selection. Sometimes, the Tax Agency requests for wider information in order to decide on the APA application.

In case an APA is granted, it is important to note that the company will be required to file every year, together with the tax return, a document explaining how the APA has been applied to the operations carried out in the period that have been affected by the APA and their valuation.

The APA request must be submitted before transactions are carried out; however, the APA could also include the valuation for previous operations (retroactive effects).

There is no fee for requesting an APA in Spain.

The APA shall have effects on the transactions carried out after the approval, with a maximum length of four years. The APA can also have retroactive effects to years without statute of limitation protection.

The Taxpayer can ask for the renewal of the APA, within the six-months period before the end of the applicable APA, being necessary to justify that the original circumstances have not changed, so that the agreement initially adopted is still applicable.

In some cases, Tax Agency accepts the application of the APA for previous tax years when it is expressly requested. The retroactive effect is only accepted if regarding those years open to tax review (not statute-barred) provided that there is not any pending resolution for these operations. It will only be applicable to previous tax years, if this is expressly mentioned in the APA.

There are two types of penalties that can be imposed regarding transfer pricing transactions:

• No value adjustments – when the value of the transaction is correct, but the entity does not have the documentation required in CIT Act, the sanction could be:
1. EUR1,000 for each item of data; and
2. EUR10,000 for set of omitted or false data related to the documentation required – this sanction cannot exceed the lower of the following:
1. 10% of the aggregate amount of the transactions subject to CIT, PIT or Non-Resident Income Tax carried out in the tax period; or
2. 1% of net turnover.

• Value adjustments – in case of lack of complete documentation or in case the conditions applied to the controlled operation differed from those resulting from the documentation, a 15% penalty would be imposed.

The Tax Agency is used to deal with transfer pricing audit and this has resulted in a common procedure to check the transfer pricing policy.

The Spanish Corporate Income Tax Regulations establishes the content for transfer pricing documentation as follows.

Local File

The information that must be included on the local file documentation is the following.

• Taxpayer information – management structure, persons or companies receiving reports on the taxpayer’s business activities, description of the taxpayer business activities and main competitors.
• Information regarding controlled transactions – description of the nature, amount of the transactions, information about companies with whom transactions are carried out, comparability analysis, explanation of the valuation method chosen, a copy of the agreement with any tax authority and any other information that could be relevant for valuing the operations.
• Taxpayer economic and financial information – the taxpayer annual financial statements, the reconciliation between the data used to apply the transfer pricing methods and the annual financial statements and the financial data for the comparable used and their source.

Companies or groups with a turnover below 45 million might prepare a reduced version of the local file. If turnover is below 10 million, there is no obligation to prepare local file.

Master File

This information is required for companies with a net turnover equal to or greater than EUR45 million and the following details are required.

• Information related to the structure and organisation of the group – group description identifying every entity.
• Information related to the group’s activities – main activities of the group, description of the functions performed, and of the method applied in related transactions.
• Information relating to the group’s intangible assets – description of the group strategy, location of the main activities and intangible assets.
• Information relating to financial activity – description of the group means of financing with special mention to financing agreement with related entities.
• The group’s financial and tax position – the group consolidated annual financial statements if it is mandatory and a list of any agreement with Tax Agency with effects for the group.

Country by Country Report

This report is required for companies with a net turnover of at least EUR750 million in the previous 12 months. Its content is in line with the standard template as included in the Action 13 Report of the OECD.

The transfer pricing documentation must be available to the tax authority as from the end of the voluntary payment period (for most of the companies on 25 July of each year).

Those companies that are taxed on consolidated basis for CIT purposes are exempt of having transfer pricing documentation as well as related companies with transactions that does not exceed EUR250,000.

The transfer pricing documentation must be prepared in accordance with the Spanish legislation, in compliance with OECD Guidelines and with the EU Joint Transfer Pricing Forum recommendation.

In short, related companies must make available to Spanish Tax Authorities the transfer pricing documentation.

• Local file – group companies with a net turnover of at least EUR45million.
• Master file – group companies with a net turnover of at least EUR45 million.
• Country-by-country report – group companies with a combined net group turnover equal to or greater than EUR750 million in the previous tax year.

The main points of transfer pricing in Spain are fully aligned and based on the OECD Guidelines. However, the Spanish legislation differs from OECD Guidelines in terms of broader parameters for related parties. See 2.1 Application of Transfer Pricing Rules for which parties are considered as related parties in Spain. These parameters would imply the need to prepare the transfer pricing documentation to operations that may not be considered as related parties’ transactions in other countries.

Spanish CIT Act precisely exposes that all transactions carried out between related parties must be valued on arm’s length basis. Furthermore, the proof that the transactions are carried about on arm’s length basis must be provided by the taxpayer.

The Spanish legislation was not significantly affected by BEPS project because most BEPS proposals were somehow already included or deemed to be included in the Spanish Law.

The OECD BEPS 2.0 project establishes, in its Pillar 2, a minimum taxation of 15% for companies with a net turnover of at least EUR750 million. The EU has also developed a Directive in relation with OECD BEPS 2.0 about the minimum taxation for large companies and this Directive is in process of being implemented into Spanish legislation.

Spanish Tax Authorities has recently published a draft of law modifying CIT Act and implementing Global Anti Base Erosion (GloBE), which is foreseen to be approved during 2024.

So, for the tax periods commencing on after 1 January 2024, group of companies with a total net turnover equal to or greater than EUR750 million will be taxed subject to Pillar 2 minimum tax of 15%.

As of 2021, Spain has applied digital tax (also known as the “Google Tax”); however, that tax is likely to disappear in the case of a common European approach being reached concerning Pillar 1.

In Spain there is no option for an entity to bear the risk of a transaction in the name of another company.

In Spain the UN Practical Manual on Transfer Pricing is not applied because the main reference for transfer pricing is the OECD guidelines. The UN Practical Manual on Transfer Pricing could only be considered as an interpretative criterion for some DTT.

Spanish transfer pricing rules do not provide for safe harbours, though any safe harbours provided in the OECD guidelines will be directly applicable.

In Spain there is not any specific rule on savings arising from developing transactions.

In Spain all transfer pricing rules are based on OECD transfer pricing guidelines and there is no special rule. As mentioned, the parameter of related parties is significantly broader in Spain compared to other jurisdictions.

Spain does not usually require co-ordination of valuation methods between transfer pricing and customs. In fact, there are several differences in the regulation of TP and customs; by way of example, definition of related parties is not absolutely the same in both fields.

That said, Spanish Customs Authorities are keen to increase customs value in accordance with transfer pricing rules (eg, those resulting from TP claims, APAs or lease of intangibles agreements).

During a tax audit, there are some meetings to discuss and to try to solve some controversial points. When the tax inspector has gathered all the information required, there is a period for the taxpayer to check the documents and submit any additional information or any argument to support its position. The process finishes with a proposal for an assessment by the tax inspector once the submission period has ended. There are three types of assessment documents:

• assessment resulting from an agreement/deal between the taxpayer and the tax authorities;
• assessment with the conformity of the taxpayer, showing the total acceptance to the tax auditor’s proposal; and
• assessment in disagreement, in case the taxpayer rejects the tax auditor’s facts and valuation grounds supporting the assessment.

Economic-Administrative Tax Courts (“Tax Courts”) usually agree with tax inspectors’ position and, in many occasions, it is necessary to appeal before courts of justice. The total litigation process could last over ten years.

When taxpayers disagree with tax inspectors, appeals must be submitted within one month since the notification date. There are Regional Tax Courts (TEARs) and Central Economic-Administrative Tax Court (TEAC).

If tax courts rejected the appeal, the taxpayer could file a contentious-administrative appeal before a court of justice within a period of two months since the tax court resolution date.

The Spanish courts with competence in tax matters are the National High Court and the Regional Courts of Justice, the first one with competence in appeal against the resolutions of the TEAC and the other with competence in appeal against the decisions of TEARs.

A negative resolution by the National High Court could be appealed before the Supreme Court in a period of 30 days since the negative resolution was notified.

When the case is relevant, the Supreme Court judgment creates case law, that will be considered as a doctrine for future similar cases.

Traditionally, Spanish courts were not used to deal with transfer pricing cases. However, because of the large number of transfer pricing claims issued by the Spanish Tax Authorities, tax courts and judicial courts are becoming ever more sophisticated when analysing TP litigations.

The number of judicial precedents is quite limited, however, a few rather interesting judicial precedents have been issued in relation to matters like the use of secret comparable, conditions to use the median and statistical tools.

Some of the Most Relevant Judicial Court Judgments

The Regional Court of Justice of Murcia, in a sentence dated 30 January 2023, decided that the Spanish Transfer Pricing Regulations do not admit the application of the acquisition or production cost as a method to value operations between related parties.

National High Court sentence of 7 December 2022 provided that the Spanish Tax Authorities have to prove that assumed risks are the same in two operations if they want to argue that both are valid comparables in order to apply the CUP method.

On 28 November 2022 a sentence issued by National High Court concluded that the transactional net margin method cannot be used to assess the value of the transfer of mining exploitation rights to the extent that those rights only entail an administrative authorisation for carrying out an economic activity in the future, but not an actual activity.

The Regional Court of Justice of Valencia rule on 28 April 2022 stated that for valuing a related party operation, it can be taken that the valuation applied to another related party operation to the extent that the latter reflects market conditions.

The Nation High Court in its rule of 20 December 2021 exposed that the comparable uncontrolled price method used in prior tax years does not necessarily involve that it must also be applied in the following years. In this sense, as there are new circumstances and there are not any internal comparables, the comparable uncontrolled price method could not be applied and the transactional net margin method would be used instead.

The TEAC decision of 5 September and 3 October 2013 denied the application of a “secret comparable” to determine the market value of the operation. The TEAC declared that the application of secret comparable leaves the taxpayer without the possibility of legal defence against the value determination by the tax authorities.

On 15 October 2018, the Spanish Supreme Court issued a sentence explaining the different penalty regimes that can be applied to related-party transactions. This judgment stated that, in case the taxpayer is not obliged to have transfer pricing documentation, this sanction will not be applied. However, this does not avoid that general penalties can be applied to the taxpayer.

One of the most recent cases regarding transfer pricing is the National High Court judgment of 6 March 2019. This sentence stated that multi-year analysis could be accepted for conducting a comparability study, but comparison must specifically relate to the taxpayer’s results for each year under review. The National High Court accepted the entity allegations and concluded that, in order to use the median resulting from a benchmark, the Spanish Tax Authorities should demonstrate that there are some “comparability defects” in several comparables.

In Spain there are no restrictions for outbound payments to uncontrolled transactions.

It is important to mention that all transactions with related parties that are resident in countries considered to be tax havens will need to be supported through the required transfer pricing documentation, no matter the amount involved (ie, as from the first euro). Furthermore, the transfer pricing documentation on transaction with other entities resident in a tax haven require all the information about the parties (no possible simplification).

Furthermore, there is a form of the Bank of Spain (ETE) that must be submitted when there are payments; receipts to or received from non-residents. This form will be submitted monthly when the annual total amount of operations to be declared is equal or above EUR300 million, quarterly if the total annual amount is between EUR100 million and EUR300 million or yearly if the total annual amount over a year is less than EUR100 million.

However, if the total amount of the transactions is lower than EUR1 million per year, only the ETE form must be submitted when it is requested by the Bank of Spain.

In Spain there are no restrictions for outbound payments to controlled transactions, but all transactions with related companies or established in a tax haven jurisdiction must be justified with transfer pricing documentation.

There is no relevant rule. Thus, Spanish Tax Authorities are free to apply domestic regulations – provided that they do not conflict with a Double Taxation Agreement or an EU rule.

For confidentiality reasons, neither audit results nor APAs are published in Spain.

Spanish Tax Authorities have expressly rejected the application of secret comparables in order to value transfer pricing transactions (see 14.2 Significant Court Rulings).