Henry Towers transfer pricing service assists companies and their affiliates in dealing with the international and domestic tax duties related to intercompany pricing.
Our professionals develop transfer pricing reports and policies that optimize profits, increase cash flows, and moderate taxes while being defensible, flexible, and congruent with your company's overall tax planning as well as complying with the regulatory requirements in this field.
At Henry Towers we want to be your partner in Spain (Madrid and Barcelona), we will apply the rules and methods for pricing transaction for you. So that you can focus on your business while we make it as easy as pie.
Keeping you safe and compliant is our biggest priority. At Henry Towers we take very seriously your business and we will never put it on risk. Transfer pricing is one of the most fashionable’s concepts from tax authorities, we have developed a practice to help you with compliance while keeping business purpose and sense to the application of the norm. Doing business with us is as easy as one, two, and three.
Information gathering and context understanding about Transfer Pricing
Our teams will be gathering the required information as well as the business context, for us it is important to have a comprehensive understanding of your business in order to propose you the best options to consider. It is important for us to have access to your map of entities and understand the transactions occurring among them.
Execution process of Transfer Pricing
team will be proposing you the recommended strategies with pros and cons for us to discuss and decide together. We will proceed with the agreed solutions fulfilling all the required tasks as well as the communication, if required, with the tax agencies. During the elaboration of the reports and the assessment of pricing, we will need to exchange information with you and/or your team to validate assumptions taken. Transparency and clear visibility of the business purpose and organization are key for the service to be valuable. We know we can work with you to eliminate the risk and provide value to your business.
Transfer Pricing Report
You will be updated of the entire processes, during the information gathering, the elaboration of reports and the pricing assessment. Our team will always keep you updated up to the conclusion of the process and reach out to you once a year to validate if documentation requires any update.
The Spanish transfer pricing legislation is set at article 18 of the Corporate Income Tax Law (act 27/2014) and its regulatory development instated by Royal Decree 634/2015. This legislation introduces substantial changes compared with the former legislation which enter into force for the tax years beginning as from January 2015.
The Spanish legislation is complemented with OECD Guidelines as well as the OECD papers developed in BEPS action plan.
There are three sets of documents that have to be prepared:
- The documentation concerning the group to which the taxpayer belongs. That is, common, harmonised, relevant information for all members of the group set out in the EU (masterfile).
- The documentation related to the taxpayer (localfile).
- Resident entities in Spain belonging to a group with a joint turnover of at least 750 million euros must provide a country-by-country report.
Note that from FY 2016 the information requirements (Masterfile and Localfile) have been increased for groups with a turnover greater than 45 million, following the guidelines set by the OECD in BEPS action plan. Essentially the legislation adds the request of information concerning group intangible assets significantly increases, and new data to be provided concerning the main business activities of the group are also requested.
Masterfile and Localfile needs to be available by the end of the voluntary period for filing the corporate tax return. They must be submitted upon request of the tax authorities.
The country-by-country report, which also follows the guidelines set by the OECD in BEPS action plan, has to be filed within a 12-month period from the close of the reporting fiscal year. A specific tax form (231 Form) will be available. The main responsible is a Spanish parent company of a multinational group and tax resident in Spain (subsidiarly, Spanish subsidiaries) with a group joint turnover over 750 million euros.
Besides, for Spanish subsidiaries that belong to a group with joint turnover over 750 million euros have to notify the Spanish tax authorities of the name and tax residence of the company within the group filing the CBC report.
Regarding the penalty regime, penalties linked to the formal requirements of the documentation are also enforceable and may apply to both (i) the adjustments performed and to (ii) the lack of support of the related-party transactions performed by the taxpayer
ADVANCE PRICING AGREEMENTS
The advance pricing agreements (hereinafter APAS) are procedures based on the in the trust between the taxpayer and the Tax Administration with the aim of to establish a stable legal framework for the following tax periods. The Spanish legislation, following the recommendations issued by International law, states that the documentation submitted by the Taxpayers in an APA can only be used in respect of these Procedures, which cannot be used by the Administration in other different procedures. In addition, in the case of withdrawal or dismissal, the Administration must return to the taxpayer the documentation provided.
LANGUAGE OF THE DOCUMENTATION OF RELATED TRANSACTIONS
An important issue that is often raised by taxpayers, especially by multinational groups, is that of the language in which the Transfer pricing documentation. The international character of multinational enterprises makes a large part of its documentation is produced in a language other than official languages in Spain. Is a fact that the multinationals in their daily functioning usually use a language Communication and management that goes beyond the local languages of the countries in which they are established, and it is also an easily today the common language that allows people from different countries to understand each other is the English. For the above reasons, as well as efficiency reasons, studies on Transfer prices are made taking into account their use in a Pan-European or worldwide. These studies, usually of great generally carried out in a single language of wide knowledge at European level or world. In the framework of the joint European Transfer Reached a broad consensus on the fact that it should not be necessary Translation of the documentation into the official language of a Member State.
Spanish Tax Administration, taking into account the circumstances of each case, the type of Documentation and explanations given by the taxpayer, usually determine that the documentation can be provided in an unofficial language in Spain, usually the English, but the Administration can request in a next step the documentation in Spanish.
DECLARATION OF THE RELATED OPERATIONS IN FORM 200 OF CORPORATE TAX AND NEW FORM 232
In addition to the transfer pricing documentation to be prepared, Spanish taxpayers also has to fulfil the following forms:
Until the Corporate Income Tax return for FY 2015 the related-party transactions should be reported in form 200. As of Corporate Income Tax return for FY 2016 there is a separate form (form 232) to report related party transactions. The transactions that have to be reported are operations compelling the preparation of the documentation and the amount of which exceeds EUR 100,000.
What are linked transactions, how are they assessed and who does the regulation affect?
Related transactions are those carried out between natural or juridical persons between which there is a certain degree of connection between them, either because they belong to the same business group , share managers, have common shareholders, or because there is a family relationship of the first Or second degree among the people who perform the operation.
Article 18 of the Corporate Tax Law specifies that "transactions between related persons or entities shall be valued at their market value. A market value shall be understood as having been agreed by independent persons or entities under conditions which respect the principle of free competition ".
Linked operations affect companies in a number of ways:
- Accountants, in accordance with accounting regulations and international standards on transfer pricing. In addition, there are information and accounting documentation obligations in the area of annual accounts, specifically in the report of the PGC and the PGC-PYME.
- Prosecutors, to comply with the requirements of the Tax Agency.
- The analysis of the accounting , fiscal and documentary aspects in each case of application requires a detailed study, a study that can be approached in three phases:
- Analysis of related operations: tax valuation, linkage concept, analysis of valuation methods, documentation of operations, sanctions and analysis of the main operations.
- Accounting for linked transactions: concept of related transaction in the accounting field, accounting of transactions and types of transactions between related parties. The main transactions between related parties affecting accounting are:
- Loans society-partner and socio-society.
- Rentals company-partner and partner-society.
- Non-monetary contribution.
- Sales of fixed assets.
- Sales of stocks.
- Provision of services.
- Business combinations.
- Accounting for investments in equity of group companies, multigroups and associates.
- Transfer prices between operations between group companies.
How will transactions between individuals or related entities be valued?
- Transactions between related persons or entities shall be valued at their normal market value, which would have been agreed by independent persons or entities under conditions of free competition.
- For the determination of a market transfer price between related parties, several methods can be used. We will focus on the direct ones that are:
- Uncontrolled Comparable Price Method (CUP). It compares the price of the transaction classified as an operation linked to other comparable, uncontrolled or external similar transactions between the parties. This method compares prices, not margins and for it can be used the prices of customers or suppliers, comparing the physical characteristics of the product, its quality, geographic market of the sale, etc.
- Price Resale Method. It uses the margin that an independent seller would obtain in the resale of a product similar to the one that has been object of transaction in the related operation. It is usually used in distribution activities. The calculation uses: purchases of similar products from unrelated persons, sales of similar products by the supplier to unrelated parties in similar markets and similar transactions between independent parties.
- Increased Cost Method (C +). It compares the related transactions according to the gross margins obtained, adding an appropriate margin that would be used in an independent transaction.
- There are also indirect valuation methods such as the profit split method and the Transactional Net Margin Metho (TNMM)
Which companies are exempted from complying with the documentation obligations of the related transactions?
The Tax Administration may verify that the transactions carried out between related persons or entities have been valued at their normal market value and will, if applicable, make any valuation adjustments that may be made in respect of transactions subject to this tax, the IRPF or the income tax. The income of non-residents that had not been valued at their normal market value, with the documentation provided by the taxpayer and the data and information available to him.
The related persons or entities must keep at the disposal of the Tax Administration the documentation that is established by regulation, except for the companies in which it is complied with:
The net amount of turnover in the tax period is less than 10 million euros.
The total amount of related transactions carried out by them during the year (including specific transactions) does not exceed € 100,000 of market value.
However, the exemption of the documentation obligation does not apply, in any case, to transactions with related persons or entities residing in a tax haven, except where they are resident in a Member State of the European Union and the taxpayer believes That the transactions are for valid economic reasons and that those persons or entities are engaged in economic activities.