In Spanish legislation, two or more companies or entities are considered related parties when one of them participates directly or indirectly in the management, control, or capital of the other. These related parties can be natural or legal persons. The scope of the relationship is defined in the domestic legislation of each State. In Spain, at the corporate level, an entity is related to another entity when it participates in, at least, 25 percent of the share capital or own funds.
Transfer prices are those set between related parties for transactions involving goods, services, or rights.
To ensure that transfer prices allow for a proper distribution of profits among related companies, both international and national regulations have adopted the arm’s length standard. This requires related-party transactions to set their prices as two independent companies would do for the same operation under similar circumstances. In other words, related-party transactions must be agreed upon at market prices.
Should I report all related-party transactions carried out by my company?
According to the Corporate Income Tax Law (24/2014), in principle, all companies that have carried out related-party transactions (domestic or international) whose amount exceeds €250,000 valued at market prices, in a tax period with the same person or entity, must document their transactions.
Also, companies whose specific transactions exceed €100,000, when they are transactions of the same type, valued using the same method, and represent more than 50% of the company’s turnover.
How do I report related-party transactions that exceed the minimum amounts?
Companies with related-party transactions have two types of obligations:
- Reporting: through a standardized model (Model 231 and/or 232) submitted to the Tax Administration on specified dates and in specified formats.
- Documenting: through the preparation of a report (Local and/or Group) documenting the transfer pricing policy and valuation of related-party transactions, which must be prepared and available in case the tax authority requests it (starting from the corporate income tax return).
The details of these obligations depend on the turnover of the company and the group to which it belongs. (Information Model, Local File, Master File, Country-by-Country Information Model).
What happens if these operations are not reported or documented?
The Corporate Income Tax Law establishes that the Tax Administration may adjust the valuation of related-party transactions so that the prices of these transactions are in line with market prices.
Additionally, the LIS considers it an offense not to provide or provide incomplete or false data in the documentation required by law. This offense may result in fines for each piece of data, set of data, or for the valuation correction.
At addwill, we can advise your company on the valuation of your related-party transactions and on preparing the legal documentation within the appropriate deadlines. Our expertise in taxation allows us to offer the most suitable analysis for your operational conditions and your group’s circumstances.
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