Code of Best Tax Practices

Code of Best Tax Practices

INTRODUCTION

Companies play a very important role in social life, not only as generators of employment and wealth, but also as agents of development in the communities in which they operate. Companies are aware of this and have been seeking for years to strengthen their social responsibility, which involves following a series of conducts that go beyond respect and strict compliance with laws and regulations, to adopt positions of active and voluntary contribution to social, economic and environmental improvement.

The existence of an adequate tax system is an important element of a country's institutional framework, which justifies the active involvement of citizens, social agents and authorities for its better development and effective application.

In this regard, this Code of Good Tax Practices contains recommendations, voluntarily assumed by the Tax Administration and companies, aimed at improving the application of our tax system through increased legal certainty, reciprocal cooperation based on good faith and legitimate trust between the Tax Agency and the companies themselves, and the application of responsible tax policies in companies with the knowledge of the Board of Directors. These recommendations are formulated on a non-exhaustive and flexible basis, allowing companies that adopt them to adapt them to their own characteristics.

Correct tax management by companies and greater legal certainty in fiscal matters leads to greater strength in their economic results, reducing their risks, including reputational risks.

The principles of good faith and legitimate trust that legally govern the operation of Public Administrations take on special relevance in the current tax system. Not only because of the greater demands of its regulations, but also because economic systems require companies, and especially those with an international component, to have greater complexity in their operations. In this scenario, the proper management of the risks inherent to the fulfillment of tax obligations by companies demands greater reciprocal cooperation with the Tax Administration.

Even more so when one of the two main lines of action of the Tax Agency in accordance with the regulations that govern it consists of providing information and assistance services to taxpayers. Beyond the fact that the Tax Agency guarantees the full exercise of taxpayers' rights in the development of its activity, a modern Tax Administration demands greater proximity to companies, both as main taxpayers and for their valuable role as tax collaborators. This proximity must be characterised not only by a better and more detailed knowledge of the taxpayer's actions, but also by ensuring the maximum publicity and durability of its interpretative and action criteria. Ultimately, it is this commitment by the Tax Authority that must provide the necessary legal security to taxpayers and allow for better and more effective compliance with tax obligations. For all these reasons, tax management must be configured not as a procedure between opposing parties, but as a collaboration for a common goal.

In this framework, the objective of the Code is to promote a mutually cooperative relationship between the State Tax Administration Agency (hereinafter, the Tax Agency) and the companies that subscribe to it, a relationship based on the principles of transparency and mutual trust, which must therefore give rise to a development of the same in accordance with the principles of good faith and loyalty between the parties, all of which will increase the effectiveness of the controls of the Tax Administration and will reduce the legal uncertainty to which companies could be exposed and the litigation that arises between both.

GOOD TAX PRACTICES

1. Transparency, good faith and cooperation with the Tax Agency in corporate tax practices.

1. Good practices that should be encouraged by companies are all those that lead to the reduction of significant tax risks and the prevention of behaviors that may generate them.

2. Companies will avoid the use of opaque structures for tax purposes, meaning those which, through the interposition of shell companies in tax havens or territories that do not cooperate with the tax authorities, are designed with the purpose of preventing the Tax Agency from knowing who is ultimately responsible for the activities or the ultimate owner of the assets or rights involved.

3. Companies and the Tax Agency will collaborate in detecting and seeking solutions to fraudulent tax practices that may be developed in the markets in which they are present in order to eradicate existing ones and prevent their spread.

4. The Board of Directors or equivalent body will be informed of the tax policies applied by the company. Before preparing the annual accounts and filing the corporate tax return, the person responsible for the company's tax affairs will inform the Board, directly or through the Audit Committee, of the policies followed during the year.

   Notwithstanding the foregoing, in the case of operations or matters that must be submitted for approval by the Board of Directors or equivalent body, information will be provided on the tax consequences thereof when they constitute a relevant factor.

2. Transparency and legal certainty in the application and interpretation of tax regulations by the Tax Agency.

1. The Tax Agency will ensure that its actions take into account administrative precedents and will ensure that the unity of criteria of the tax administration is respected in the interpretation of the regulations.

   To this end, the Tax Agency will apply the interpretative criteria arising from administrative and jurisprudential doctrine . In the absence of such doctrine, if there are doubts about the criteria to be applied, a report will be requested from the General Directorate of Taxes within the scope of its competence.

   The Department Directors of the Tax Agency shall inform the Permanent Steering Committee of the Agency of the interpretative criteria that they intend to apply in their actions, provided that they refer to issues of special importance or that may generate significant disputes with taxpayers and in which there is no criterion established by the General Directorate of Taxes, the Central Economic-Administrative Court or the Courts of Justice.

2. Without prejudice to the applicable regulations regarding the interpretation and qualification of tax rules and the work of information and assistance to taxpayers, the Tax Agency will make public the criteria it applies in its control procedures as long as they are susceptible to being applied generally.

3. The Tax Agency will establish appropriate procedures to enable taxpayers who have doubts about the tax treatment of certain operations or transactions to know, as quickly as necessary, the criteria that the Administration would apply to such operations or transactions.

4. Taxpayers may submit an explanatory annex along with their tax returns, stating the criteria followed in preparing them as well as the facts on which they are based. If the facts correspond to reality and the criteria are reasonably founded, this will be evaluated favorably by the AEAT for the purposes of determining the diligence, fraud or negligence referred to in the General Tax Law.

5. The Tax Agency, in its activity of applying the tax system, guarantees the full exercise of the rights of taxpayers .

3. Reduction of litigation and avoidance of conflicts.

1. The Tax Agency and companies aim to ensure that their relations are constructive, transparent and based on mutual trust. To achieve this, both parties must try to reduce conflicts arising from the interpretation of the applicable regulations, promoting the use of the instruments established for this purpose by the Tax Legal System.

2. The Tax Agency and companies will use all the possibilities offered by the contradictory nature of the inspection procedure, promoting agreement in all procedural phases where this is feasible and assuming the following practices:

   1. The Tax Agency will provide the taxpayer with information as soon as possible about the facts that can be regularised, so that, throughout the inspection activities, the greatest possible exchange of opinions is facilitated and the correction of the company's actions in the future is made possible as soon as possible.

   2. The Tax Agency will inform the taxpayer, during the hearing process prior to the inspection reports, of the facts that influence the eventual regularization proposal. Likewise, at the request of the latter, the essential concepts to be regularised will be indicated and an attempt will be made to provide, as a guide, a provisional quantification of the liquidation that would result in accordance with the data available at that time.

   3. The Tax Agency will include in the motivation of the acts on which the regularization proposal is based an express assessment of the taxpayer's allegations.

      To ensure that the allegations submitted are properly assessed, companies will endeavour to inform the body handling the procedure as soon as they are submitted, indicating the place of submission and attempting to provide a copy of the same, preferably by electronic means.

      Companies will also endeavour to inform about requests for an extension of the deadline for submitting objections as soon as they are submitted, indicating the place of submission.

   4. The Tax Agency will effectively address, in group inspections, any objections that may be raised against the proceedings carried out on the controlled companies prior to the consolidated report.

   5. The Tax Agency will ensure that all factual issues relevant to the liquidation, as well as the corresponding evidentiary activity, are known and discussed appropriately during the inspection procedures prior to the signing of the report or, where appropriate, in the complementary procedures agreed to for this purpose.

   6. The Tax Agency and companies will promote agreements and conformities in the inspection procedure.

   7. Likewise, efforts will be made to ensure that all factual issues relevant to the initiation of the sanctioning procedure, if applicable, are known and adequately discussed prior to its resolution.

3. In order to reduce the indirect tax burden that taxpayers must bear in fulfilling certain obligations and following certain procedures, the Tax Agency will try to limit the purpose of the information requests and declarations as much as possible and will try to limit the duration of the verification and investigation procedures to the time strictly necessary to be able to carry out an adequate control action.

   For their part, companies will endeavour to provide the information and documentation requested by the Tax Agency, as well as any other information that may be relevant to the development of the corresponding procedures, as quickly and completely as possible.

ANNEX
ADHERENCE TO THE CODE OF GOOD TAX PRACTICES AND MONITORING OF ITS APPLICATION

1. Subjective scope of application.

This Code has been prepared and approved by the Large Business Forum to promote a mutually cooperative relationship between the Tax Agency and the companies that subscribe to it.

The Code will be applied by the Tax Agency and by all companies that adhere to it, with the affected parties committing to its development and implementation in their respective areas of competence. However, the Tax Agency will gradually develop section 2.3. of the same, taking into account the number of participating companies.

2. Accession procedure.

The decision to adhere to the Code of Good Tax Practices must be formalized through an agreement of the Board of Directors or equivalent body of the entity, which will be communicated to the Tax Agency. You may also notify us at any time of your withdrawal from the service.

Adherence and withdrawal must be to the entire Code; partial adherence or withdrawal to specific sections of the Code is not admissible.

The Tax Agency may inform which entities have adhered to the Code, unless the affected company expressly states otherwise, through the Technical Secretariat of the Forum.

The annual corporate governance report of companies adhering to the Code must reflect their effective compliance with its content. In the event that this issue is not reflected in the report, it will be understood, unless there is sufficient justification, that the entity has decided to waive it.

3. Monitoring Commission.

The Plenary Session of the Forum of Large Companies will determine the creation of a Monitoring Committee for the application of the Code of Good Tax Practices, composed of six members, appointed annually in equal parts by the Tax Agency and the companies participating in the Forum. The position of President will be held by one of the members appointed by the Tax Agency and that of Secretary will be held by a member from among those appointed by the companies.

The decisions of the Monitoring Committee shall be adopted by consensus among its members.

The Large Business Forum is the venue where the Tax Agency and Large Businesses must study and agree on the inclusion of new matters in the Code and the interpretation of its recommendations. One of the primary objectives of the Monitoring Committee is to present to the Committee the questions of interpretation that it considers appropriate, as well as the opportunity to address new matters, without prejudice to any other initiatives that may assist in the materialization and implementation of the Code.

The Monitoring Committee will meet as a general rule once every six months, without prejudice to the possibility of doing so as many times as deemed necessary by the representatives of the Tax Agency or the companies.

The actions of the Monitoring Committee will be guided by the principles of transparency, mutual trust, good faith and loyalty that govern the Code of Good Tax Practices.

All data, reports or background information of any kind submitted to the Monitoring Committee or obtained by it in the performance of its duties shall be confidential, and its members shall be bound to the strictest and most complete confidentiality regarding them.

The Monitoring Committee will not be able to take cognizance of the particular situations of companies adhering to the Code, and therefore will not be able to intervene in any ongoing tax procedure.