Compatibility with penalties

According to section 10 of the First Additional Provision of the Consolidated Text of the Non-Resident Income Tax Law, such serious penalties are:

1. penalties for offences against the Public Treasury regulated under Articles 305 and 305 a of the Spanish Criminal Code;

2. penalties regulated under Articles 191, 192 and 193 of the General Tax Law (Law 58 of 17 December 2003), provided that a qualification criterion referred to in Article 184 of said General Tax Law applies;

3. penalties regulated under Article 18.13.2 of the Corporation Income Tax Act (Law 27 of November), provided that a qualification criterion referred to in Article 184 of General Tax Law (Law 58 of 17 December 2003), applies. For these purposes, any reference to “tax return” in said Article 184 of the General Tax Law shall be understood as references made to transfer pricing documentation

Notwithstanding the provisions of point c), penalties applied for incomplete provision of transfer pricing documentation, where it the quantification or determination of market value is nor seriously hampered, shall not be considered as a penalty for these purposes.

1. Mutual agreement procedure requested under a Tax Treaty.

   In such cases, the provisions of the applicable Tax Treaty would apply. In general, the Tax Treaties in force in Spain do not restrict access to mutual agreement procedures in the case of serious penalties, although there may be restrictions on access to arbitration where one of the penalties referred to in section 10 of the Fists Additional Provision of the Consolidated Text of the Non-Resident Income Tax Law has been imposed in a final ruling.

   Therefore, if the convention does not provide for restrictions on the mutual agreement procedure as a consequence of the existence of serious penalties imposed in a final ruling, the mutual agreement procedure will take place as normal and will take priority over any domestic appeals or claims, which will be suspended until the conclusion of the mutual agreement procedure.

   Conversely, if the convention restricts access to arbitration in the case of a serious penalty imposed in a final ruling, where a mutual agreement procedure and an administrative or judicial appeal relating to the penalty are taking place at the same time, it will be necessary to wait until a final decision is issued regarding the penalty (see FAQs).

2. Mutual agreement procedure requested under the Arbitration Convention.

   Article 23 of the Regulation on Mutual Agreement Procedures states that the mutual agreement procedure will not take place if the companies in question have been subject to a serious penalty imposed in a final ruling. In the case of Spain, the penalties listed in section 10 of the First Additional Provision of the Consolidated Text of the Non-Resident Income Tax Law are regarded as serious penalties (see question 3.a of this section, on penalties).

   In the same regard, Article 28 of the Regulation on Mutual Agreement Procedures states that initiation of the mutual agreement procedure will be refused, giving reasons, where a serious penalty has been imposed in a final ruling as defined in the Arbitration Convention.

   A contrario sensu, where a penalty has not been imposed in a final ruling, that is, where it is the subject of an administrative or judicial appeal - the initiation of the mutual agreement procedure may be allowed, but, in that case, as established in section 9 of the First Additional Provision one of the Consolidated Text of the Non-Resident Income Tax Law, the mutual agreement procedure will be suspended until a final ruling has been issued.

3. Mutual agreement procedure requested under the Directive.

   In this case, the Regulation on Mutual Agreement Procedures allows a mutual agreement procedure requested under the Directive to be initiated in cases where serious penalties have been imposed on the taxpayer in a final ruling.

   Nevertheless, Article 43 of the Regulation on Mutual Agreement Procedures states that access to the advisory commission provided for in Article 42 of the Regulation on Mutual Agreement Procedures (see section on arbitration) will be refused where the penalties referred to in section 10 of the First Additional Provision of the Consolidated Text of the Non-Resident Income Tax Law have been imposed in a final ruling.

   Where the ruling imposing the relevant penalty is not final and is the subject of an appeal, access to the advisory commission will be prevented until a final decision is issued regarding the penalty, in either administrative or judicial proceedings (see FAQs).