Code of Best Tax Practices

Proposal for the voluntary submission of documentation on related-party transactions within the Code of Good Tax Practices, approved at the plenary session of June 8, 2023

The purpose of this document is to advance the development of the cooperative relationship model between the State Tax Administration Agency (Tax Agency) and companies covered by the Code of Good Tax Practices (CBPT).

The experience in applying this Code has been, so far, useful and fruitful and has constituted an effective instrument for improving the relationship between the Tax Agency and the companies adhering to it.

In order to deepen this relationship, it is considered that certain actions should be undertaken aimed at producing new advances, in particular and in accordance with this document, through the voluntary contribution of documentation relating to related-party transactions carried out by the taxpayer.

To this end, firstly, the scope of the information to be submitted and its submission deadline are indicated.

Secondly, the reason why it is considered that the provision of this documentation could be convenient within the framework of the cooperative relationship is described.

Ultimately, an analysis is made of the potential utility or advantage that companies adhering to CBPT will obtain if they provide the Tax Agency with the reference information.

1. Scope of the information to be submitted, taxpayers affected, form and deadline for submission.

The purpose of this document is to establish the possibility of providing information regarding related party transactions, on a strictly voluntary basis and by entities that are members of the CBPT .

For these purposes, the documentation relating to transfer pricing is understood to be that included in article 18 of Law 27/2014, of November 27, on Corporate Tax and articles 13 and following of the Corporate Tax Regulations, approved by Royal Decree 634/2015, of July 10. This regulation establishes the mandatory nature of its preparation, as well as the obligation for this documentation to be available to the tax authorities from the end of the voluntary declaration period.

The voluntary submission of this documentation would affect both groups whose parent company is located in Spain and those that belong to non-resident business groups.

In order to determine the documentation to be submitted, it would be necessary to distinguish:

• In the case of groups whose parent company is resident in Spain, the documentation should include that provided for in Article 15 of the Corporate Tax Regulations (Royal Decree 634/2015) with regard to the group (masterfile), and that provided for in article 16 with respect to the entity/entities resident in Spain.

• In the case of subsidiaries or permanent establishments resident in Spain, which belong to non-resident groups, the documentation will refer exclusively to that provided for in article 16 of the aforementioned Regulation (local). file).

As regards the deadline, the information will be submitted six months after the end of the Corporate Tax declaration period, therefore, in January of the year following the submission of the declaration, in the case of companies whose tax period corresponds to the calendar year.

2. This is why providing documentation may be appropriate within the framework of the cooperative relationship between the Tax Agency and the entities to which the CBPT applies.

As already noted, the preparation of documentation relating to transfer pricing, in particular, that contained in article 18 of the Corporate Tax Law and articles 13 et seq. of the Tax Regulations, is mandatory. These rules also establish the obligation for this documentation to be available to the tax authorities.

This is a key aspect, as it shows the ease of the commitment set out in this document, since this documentation does not have to be prepared specifically by taxpayers when requested, but rather it is documentation that, in any case, they must prepare.

The provision of this documentation, however, can only be required by the administration within the framework of tax actions and procedures, either for verification or derived from requests for information, unlike what happens in other countries in our immediate surroundings. ⁽¹⁾.

Obtaining this information early will provide the tax authorities with a better understanding of the taxpayer's activities and, in particular, of the aspects included in the tax transparency reports.

To conclude this point, and with regard to the actions that the Tax Agency could carry out after receiving the information, that is, how it will exploit the information and what consequences it could have for companies, we must refer to the regime provided for transparency reports. Therefore, its purpose would be none other than that included in the Proposal for the reinforcement of good practices of corporate tax transparency of companies adhering to the CBPT dated October 28, 2016, that is, to “ allow an adequate and early knowledge of the tax policy and tax risk management of companies adhering to the CBPT ”, so the use of that information “ cannot be other than for the risk analysis activity of the Tax Inspection bodies ”.

3. Utility of presenting documentation of related-party transactions for companies.

As indicated above, the voluntary contribution by companies adhering to the CBPT of the documentation of related-party transactions would generate a series of advantages for them that should be highlighted.

Firstly, we must remember that the entities have to make very little effort, since this is information that they must have already prepared and that must be available to the tax authorities.

Secondly, the provision of this documentation would help the tax inspectorate to carry out a correct analysis of the tax risks of the company's transfer pricing policy, which would result in more efficient and early administrative control of the latter and, therefore, in obtaining legal certainty in a more immediate manner, allowing the company to know more quickly which aspects may be considered tax risk by the tax authorities and which may not. Obtaining this documentation would serve, in particular, to complete and clarify the information contained in the transparency reports when these have been submitted.

This greater understanding of the operations carried out by an entity may allow the Administration to rule out risks that, otherwise, and not being able to be clarified by the tax Administration through other means, would have to be the subject of a request for information from the taxpayer or an inspection procedure, both situations that could be avoided by early ruling out tax risks.

This is therefore an essential aspect, since obtaining this information early could exclude the carrying out of inspection actions, which present a high opportunity cost and use of resources for the tax administration and attention to the request for the taxpayer. In other words, there are advantages for both parties without any additional cost for companies, given that the obligation to have this documentation is already included in current regulations.

Thirdly, the presentation of the corresponding documentation would allow strengthening the cooperative relationship by complementing the information contained in the transparency reports. This will contribute to the objective of reducing litigation and, if necessary, an informal process of exchange of views with the Tax Agency may even be initiated in which the company may, if necessary, clarify the information provided or provide additional details, in a similar way to that provided for tax transparency reports, without the need for this process to necessarily occur within a formal verification procedure.

And as with transparency reports, taxpayers may obtain a written opinion from the Tax Agency on any specific issue raised in this process, in accordance with the provisions of section 2.3 of CBPT , and benefit from the provisions of section 2.4 of CBPT , which states that, to the extent that the data communicated corresponds to reality and the criteria applied are reasonably justified, this may be evaluated favorably for the purposes of determining the diligence, fraud or negligence referred to in the General Tax Law.

⁽¹⁾ As an example, it should be noted that in Portugal the provision of this documentation is not conditional on the development of tax actions or procedures, but rather its provision is established on a general basis. ^(Back)