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Guide to mutual agreement procedures

c.7 The amounts in question in the currencies of the states concerned

Mutual agreement procedures are used to eliminate taxation that is not in accordance with a convention, whether it is one of the Tax Treaties in force in Spain or the Arbitration Convention.

Requests for initiation must, therefore, indicate the amount that has been taxed contrary to the provisions of the convention applicable to the particular case.

For these purposes:

  • The amount must be expressed in terms of the tax base and not the tax amount that has ultimately been charged.
  • Late-payment interest and penalties are not covered by mutual agreement procedures.

Example:

The Spanish tax authority has increased a Spanish company’s tax base by €1,000,000 on account of transactions with an associated entity domiciled in the United States.

The amount to be paid as a result of that tax assessment is €250,000, plus late-payment interest of €12,500 and a penalty of €65,000.

The taxpayer must indicate €1,000,000 in the request for initiation as the amount to which the mutual agreement procedure relates, because it is that €1,000,000 which, allegedly, has been taxed contrary to the provisions of the Tax Treaty between Spain and the United States.

They should also express the amount in dollars, because the procedure involves the United States.

Taxpayers wishing to eliminate double taxation arising from a single tax assessment relating to transactions with different countries must submit a request for initiation for each of the countries involved, indicating the different adjustment to the tax base for each country in the request in question.

It should be stressed that if a request relating to a tax assessment covering various countries includes the total increase in the tax base but it does not detail the amount of the adjustment for each country, it lacks the minimum content required.

Consequently, if the request for initiation does not identify the amount of the tax adjustment relating to transactions with the country in question, the taxpayer will be required to amend it.

If the taxpayers do not amend the request for initiation within three months of the day following notification of the request for amendment, the request for initiation will be regarded as not having been submitted and the proceedings will be dismissed without any further formalities.

Example:

The verification of a Spanish company has ended with an adjustment of €1,000,000 in the tax base for corporation tax, as a result of purchases made from French, German and Italian associated entities.

The value of the Spanish entity´s purchases corresponds 25% to France, 25% to Germany and 50% to Italy.

The Spanish taxpayer submits three requests for initiation, simply indicating that the total increase in the taxable base is €1,000,000, without itemising it:

  • A request of a mutual agreement procedure between Spain and Germany for the sum of €1,000,000, relating to transactions with French, German and Italian companies.
  • A request of a mutual agreement procedure between Spain and France for the sum of €1,000,000, relating to transactions with French, German and Italian companies.
  • A request of a mutual agreement procedure between Spain and Italy for the sum of €1,000,000, relating to transactions with French, German and Italian companies.

The taxpayer will be required to amend the three requests for initiation, indicating the amount relating to each country.

If they do not amend the request for initiation within three months of the day following notification of the request for amendment, the request for initiation will be regarded as not having been submitted and the proceedings will be dismissed without any further formalities.

Example:

The verification of a Spanish company has ended with an adjustment of €1,000,000 in the tax base for corporation tax, as a result of purchases made from French, German and Italian associated entities.

The company must identify in its request the adjustment relating to each related entity in each of the countries.

For example, assuming the products are the same, the Spanish company bought 25% of its products from France, 25% of its products from Germany and 50% of its products from Italy.

If the Spanish company wishes to initiate a mutual agreement procedure to eliminate the double taxation which may have arisen from that assessment, it must submit three different requests for initiation:

  • A request of a mutual agreement procedure between Spain and Germany for the sum of €250,000.
  • A request of a mutual agreement procedure between Spain and France for the sum of €250,000.
  • A request of a mutual agreement procedure between Spain and Italy for the sum of €500,000.

In the three requests, it must indicate that Germany, France and Italy are involved.