Arbitration Stage

As mentioned above, in the mutual agreement procedure conducted under the European Arbitration Convention, the competent authority of the state that issued the initial adjustment to which the mutual agreement procedure relates must set up the advisory commission. Where six months have elapsed since the end of the two-year period that triggers the arbitration stage and the advisory commission has not been set up, the other competent authority will be entitled to take the initiative.

Where the mutual agreement procedure is conducted under the mechanism provided for in Directive (EU) 2017/1852 and the advisory commission is not set up within 120 calendar days of receipt of the relevant request by the register of the competent authority because the Spanish competent authority has not appointed an independent person, the Spanish taxpayer may ask the Central Economic-Administrative Tribunal to appoint an independent person (Article 47.1 of the Regulation on Mutual Agreement Procedures). The appointment will be made by the president of the Tribunal or the head of whichever body of the Tribunal the president considers appropriate.

Such a request must be submitted within thirty calendar days of the end of the 120-day period referred to above (Article 47.2 of the Regulation on Mutual Agreement. Procedures).

The Economic-Administrative Tribunal will appoint the independent person from the list of independent persons referred to in Article 46 of the Regulation on Mutual Agreement Procedures and, subsequently, the independent persons will nominate the chair by drawing lots from the candidates included in that list.

As mentioned above, when the instrument under which the mutual agreement procedure is conducted provides for an arbitration stage, the obligation to do everything possible to resolve the matter by means of a mutual agreement in order to avoid taxation that is not in accordance with the applicable convention, as a general rule, becomes an obligation to achieve a particular outcome. Nevertheless, in certain cases, the competent authority may reject access to the arbitration stage.

The circumstances in which access to the arbitration stage is rejected will depend on the legal instrument under which the mutual agreement procedure is being conducted.

• Mutual agreement procedure conducted under the applicable Tax Treaty.

  In such cases, the provisions of the applicable Tax Treaty must be complied with.

  For the time being, only the Tax Treaties in force signed by Spain with Switzerland, Japan, the United States and the United Kingdom establish an arbitration phase in the mutual agreement procedure regulated therein. However, the entry into force in Spain of the Multilateral Convention under project BEPS will, give rise to the introduction of arbitration into other Tax Treaties signed by Spain.

  As noted above, the upcoming entry into force in Spain of the Multilateral Convention will, foreseeably, give rise to the introduction of arbitration into other Tax Treaties signed by Spain, with the following exclusions.

  Foreseeably, arbitration will not be available in the following cases:

  • Cases in which a court judgment or a decision of an economic-administrative tribunal have been handed down concerning the elements of the tax liability that are the subject of the mutual agreement procedure.

  • Cases where tax treaty or domestic anti-abuse provisions apply.

  • Cases in which the penalties and sanctions 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.

  • Cases of transfer pricing in which double taxation has not occurred.

  • Cases in which it is possible to opt for arbitration under the European Arbitration Convention.

  • Cases that are not suitable for arbitration where that is agreed, on a case-by-case basis, by the competent authorities of the states concerned.

  It should also be noted that the arbitration will be terminated if, at any time after the initiation of the arbitration and before the advisory commission has issued its decision, a court judgment or a decision of an economic administrative tribunal is rendered on the elements of the tax liability that are the subject of the mutual agreement procedure.

• Mutual agreement procedure conducted under the Arbitration Convention.

  Although they are not, strictly speaking, grounds for exclusion from arbitration, the following should be taken into account:

  • Cases where anti-abuse provisions apply: In such cases, 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, as the terms of the transaction are not considered in such cases, as defined in Article 4 of the Arbitration Convention, such cases are outside the scope of application of the Arbitration Convention. This criterion is based on a judgment of the National Audience confirmed by the Supreme Court.

  • Cases in which the penalties and sanctions 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: This is a case in which initiation of the mutual agreement procedure is refused, as provided for in Article 28.1 of the Regulation on Mutual Agreement Procedures.

  • Cases in which double taxation has not occurred: This is a case that is outside the scope of application of the Arbitration Convention, as the conditions established in Article 4 of that convention are not met.

  • Cases in which a court ruling has been handed down on the elements of the tax liability that are the subject of the mutual agreement procedure: In general, unless a penalty has been imposed and has been appealed, the initiation of the mutual agreement procedure will lead to the suspension of the review procedures. In the event that a court decision is handed down on the elements of the tax liability that are the subject of the mutual agreement procedure due to this exception to the general rule or if the courts have handed down a ruling prior to the initiation of the mutual agreement procedure, the Spanish tax administration is bound by it and cannot be separated from it.

• Mutual agreement procedure conducted under the mechanism established in Directive (EU) 2017/1852.

  According to Article 43 of the Regulation on Mutual Agreement Procedures, the competent authority will refuse access to the advisory commission:

  1. where 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; or

  2. case by case, where a matter to which the procedure relates does not entail double taxation as defined in Article 43.2 of the Regulation on Mutual Agreement

  In such a case, the competent authority will inform the taxpayer and the competent authorities of the other Member States concerned, without delay.