Compatibility with anti-abuse clauses
Mutual agreement procedure requested under the Arbitration Convention
In certain situations, the adjustment which, according to the taxpayer, has given rise to taxation not in accordance with the Tax Treaty, is practised in application of an anti-abuse provision. Respect the domestic anti-abuse provision, both, general anti-abuse provisions, like the ones regulated under Articles 15 and 16 of Law 58/2003, of 17 December, the General Tax Act, and specific provisions, as for example, the one regulated under Article 15.h) of the Law 27/2017, of 27 November, on Corporation Income Tax would be included.
An example of the application of a domestic anti-abuse provision would be the case where the Spanish tax administration determined that financial expenses incurred to acquire a company were not deductible because the framework of transactions giving rise to those financial expenses was evidently contrived or inappropriate to the result obtained and there were no notable legal or economic effects other than tax savings and the effects that would have been obtained with normal legal acts or transactions.
In cases such as the one described above, what is called into question is the transaction itself and the motivation for it, without going into assessing or correcting the price or other terms of the transaction, to reflect what would have been agreed between independent companies in comparable circumstances. Therefore, even in the case of a transaction carried out between associated entities, such cases are beyond the scope of the Arbitration Convention, the aim of which is to correct the double taxation which may occur when, in assessing transactions carried out between associated enterprises, conditions are established that do not respect the arm's length principle.
Consequently, if the initiation of a mutual agreement procedure is requested under the Arbitration Convention regarding a situation adjusted on the basis of an anti-abuse provision, initiation of the procedure should be refused.
Mutual agreement procedure requested under the Tax Treaty or the Directive
The situation is different in the case of procedures initiated under the applicable Tax Treaty or under the Directive (provided that this, in turn, is based on the applicable Tax Treaty).In such cases, provided that the requirements established for the initiation of the mutual agreement procedure are satisfied, access to the procedure will be granted in cases of adjustment on the basis of an anti-abuse provisions.
In any event, the following circumstances must be taken into account:
access does not necessarily mean that the competent authorities have to reach an agreement to eliminate double taxation;
the competent authorities may, in any case, reach an agreement concluding that the adjustment carried out does not constitute taxation not in accordance with the applicable Tax Treaty, thereby putting an end to the mutual agreement procedure; and
some Tax Treaties expressly exclude arbitration in cases resulting from the application of anti-abuse provisions, whether of domestic law or of conventions, such as, for example, the Tax Treaty with Japan or those which include an arbitration provision as a result of the application of the Multilateral Convention.