Skip to main content
Practical Handbook for Companies 2021

Chapter 8.Transactions with related persons or entities

The LIS establishes that the accounting valuation is the general criterion to be taken into account for determining the amount of corporate income tax.

However, for certain legal transactions and operations, including related party transactions, this criterion is replaced by market value.For this reason, and in accordance with the provisions of Article 18 of the LIS, the value to be considered for computing these transactions is that which would have been agreed by independent persons or entities under conditions that respect the principle of free competition .

The establishment of this special valuation criterion implies that companies, on the one hand, inform the tax authorities of the transactions carried out during the year (reporting obligations);and on the other hand, have the necessary justification that the valuation has been carried out correctly (documentation obligations).

For the tax periods beginning on or after 1 January 2015, Law 27/2014, of 27 November, on Corporate Income Tax, and above all, the Corporate Income Tax Regulations approved by Royal Decree 634/2015, of 10 July, in Chapter V "Information and documentation on related entities and persons" of Title I, introduced a series of new features that have led to a substantial modification of the reporting and documentation obligations for such transactions.

Subsequently, and with effect for the tax periods beginning on or after 1 January 2016, Royal Decree 1074/2017, of 29 December, amended the regulation on information and documentation on entities and related transactions regulated in the Corporate Income Tax Regulations, to incorporate the obligation to submit the so-called country-by-country information.This amendment is based on the conclusions adopted in the so-called "BEPS" Action Plan, i.e. "Base Erosion and Profit Shifting", which has been developed within the Organisation for Economic Co-operation and Development (OECD) and culminated in 2015 in the so-called "Action 13" which, among other aspects, includes a series of rules aimed at providing this information.

In the following, we will analyse the content of the information and documentation obligations, bearing in mind that the information obligation is a distinct and independent obligation from the documentation obligation.