Minutes of the meeting

Large Companies Forum

MINUTES OF THE PLENARY SESSION 2/2015

Chairperson

President of the State Agency for Tax Administration - Secretary of State for Finance

Miguel Ferre Navarrete

Vice-President of the Large Companies Forum

Director General of the State Agency for Tax Administration

Mr. Santiago Menéndez Menéndez

Members representing the Tax Agency

Director of the Department of Financial and Tax Inspection

Mr. Luis Maria Sanchez Gonzalez

Director of the Tax Management Department

Mr. Rufino de la Rosa Cordon

Director of the Collection Department

Mrs. Soledad Garcia Lopez

Central Delegate of Large Taxpayers

Mr. Ignacio Huidobro Arreba

Director of the Department of Aduanas and Excise Duties

Ms. Pilar Jurado Borrego

Members representing Large Companies

ACERINOX

General secretary

Mr. Luis Gimeno Valledor

ACS

Head of Corporate Tax Department

Mr. Jose Miguel Moreno Perez

AMADEUS IT HOLDING

Deputy Secretary of the Board of Directors

Mr. Jacinto Esclapés Diaz

BANCO SANTANDER

Managing Director

Mr. Cesar Ortega Gomez

Tax Advisor

Mrs. Carmen Alonso Peña

BANKIA

Tax Advice Director

Mr. Javier Mª Tello Bellosillo

BBVA

Tax Department

Mr. Alberto Marzal Cervantes

LA CAIXA

Director of Tax Advisory

Mr. Manuel Alfonso García Rodríguez

CEPSA

Fiscal Director

Mr. Alberto Martin Moreno

COFARES

Advisory Board of Directors

Mr. Luis Valdeolmos Gonzalez

EL CORTE INGLÉS

Assistant to the Management

Ms. Pilar Fernandez Medina

ENDESA

Head of Tax Affairs

Mrs. Maria Muñoz Viejo

FCC

Director of the Tax Department

Mr. Daniel Gómez-Olano González

GAS NATURAL FENOSA

Director of Taxation

Mr. Jaume Menendez Fernandez

GENERALI ESPAÑA

CEO

Mr. Felix Bonet Sanchez

IBERDROLA

Tax Advisory Department

Mr. José Luis Jiménez Martínez

IBERIA

Deputy Director of Fiscal and Consolidation

Mr. Jose Luis Alvarez Anderson

INDITEX

Director of the Tax Department

Mr. Andres Sanchez Iglesias

MAPFRE

Tax Advice Director

Mr. Antonio Lafuente Gonzalez de Suso

MERCADONA

VAT Tax Manager

Mr. Francisco Muñoz Puig

NORFIN HOLDER

Fiscal Director

Mr. Jose Antonio Gibello Saiz

RENAULT ESPAÑA

Director of Tax and Customs Affairs

Mr. Felix Ruiz Madarro

REPSOL

Director of Indirect Taxes and Customs

Mrs. Isabel Martinez Gil

SEAT

Director of Taxes

Mr. Francisco Javier Baulenas Setó

SIEMENS

Director of Taxes

Mrs. Ana Maria Moreda Galante

TELEFÓNICA

Fiscal Director

Mr. Angel Martin Gomez

VODAFONE

Tax Advice Director

Mr. Javier Viloria Gutierrez

Technical Secretariat of the Large Companies Forum

Technical secretary

Mr. Ángel Rodríguez Rodríguez

In Madrid, on November 2, 2015, the eleventh plenary session of the Large Companies Forum was held, attended by the persons mentioned above, and in accordance with the following:

AGENDA

1. Session opening

2. Approval of the minutes of the meeting held on June 24, 2015

3. Large Companies Forum: Current situation

4. Results of the working groups

5. Conclusions of the Cooperative Relations working group

6. Next call

7. Other considerations, requests and questions

1. Session opening

The session was opened by the Secretary of State for Finance and President of the State Agency for Tax Administration, Mr. Miguel Ferre Navarrete, who welcomed the attendees and thanked them for their presence and, especially, Ms. Carmen Alonso Peña, the new Collaborator of the Technical Secretariat of the Forum, offering her all the support of those present. He also thanks Mr Ángel Martín Gómez for his work and effort, who has been performing these duties since October 2011.

2. Approval of the minutes of the meeting held on June 24, 2015

The President gives the floor to the head of the Technical Secretariat of the Forum, Mr. Ángel Rodríguez Rodríguez, who points out that the minutes of the 10th session of the Plenary of the Forum were sent to the members of the same and adds that no observations have been received and, if there were none at this time, it would be definitively approved. As no observations were made by those present, the minutes of the plenary session of June 24, 2015 are declared definitively approved.

3. Large Companies Forum: Current situation

The President gives the floor to the Director General of the State Tax Administration Agency, Mr. Santiago Menéndez Menéndez, who briefly presents the work carried out in the various Working Groups during the second half of 2015.

SII (Immediate Supply of Information) Project Working Group

The Director of the Agency points out that the Working Group met once in the second half of 2015 and that the topics discussed focused on defining the information to be sent in special cases that might require special treatment. Specifically, situations relating to the treatment of corrective invoices have been analysed, specific issues of the special regime for travel agencies and discounts for clients not linked to a specific operation, operations with reversal of the taxable person, the start date of the calculation of the period for sending information regarding invoices received and those issued by third parties and, in the case of exports, it has been determined that the sales invoice is identified with an export operation code.

Working Group on Tax Regulation Analysis and Conflict Reduction

The Director indicates the most relevant issues that have been analyzed within this Working Group, which has held a meeting during this semester:

• Deductibility of impairment losses on depreciable fixed assets.

• Issues relating to documentation on related entities and transactions.

• No deductibility of expenses generated by delivery of shares of the parent company to employees of the subsidiary.

• Valuation of income in kind derived from the use of motor vehicles.

• Procedural issues related to the doctrine of own acts.

Excise Tax Working Group

The Director points out that this Working Group met once during the second half of 2015, and the following issues were discussed:

• Formal obligations of refineries: The possibility has been proposed that the maintenance of registration books should be carried out through the electronic headquarters of the AEAT .

• Exemption from the Electricity Tax for electrical energy intended for the production, distribution and transportation of electricity: It has been reported that article 94.7 of the Excise Tax Law has been amended in the Draft General State Budget Law for 2016.

• Tax treatment of self-consumption in the Electricity Tax, within the framework of Royal Decree 900/2015, of October 9, which regulates the administrative, technical and economic conditions of the modalities of electricity supplies with self-consumption and production with self-consumption.

Cooperative Relations Working Group

The Director highlights the progress achieved by both parties in this area. He explained that the Working Group had met once, but that various contacts had been held in order to reach a consensus on the document that would be submitted for approval by this Plenary Session. It states that the objective of this document is to advance cooperative compliance based on the guidelines included in the Code of Good Tax Practices. To this end, a series of compliance conducts have been established and a mechanism for monitoring and assessing said conducts has been established, as well as the measures to be adopted in the event of compliance/non-compliance with the Code's recommendations. Likewise, good practices in fiscal transparency and work related to the dissemination and publication of commitments made between companies and the Tax Agency have been strengthened.

The President of the Forum took the floor and expressed his full agreement with the assessment of the situation made by the Director General. The floor is then opened for discussion and, as there are no interventions, the President will give way to the various speakers who will dedicate their interventions to presenting the conclusions of the various Working Groups.

4. Results of the working groups

SII (Immediate Supply of Information) Project Working Group

Mr. Rufino de la Rosa Cordón, Director of the Tax Management Department, points out that a fundamental part of the Group's work has been to analyse the incidents relating to the supply of information on corrective invoices in order to ensure that they "fit" into the companies' computer processes, subject to the Invoicing Regulations.

Regarding the pilot test of the project that will begin in 2016, the Director of the Tax Management Department points out that the Tax Information Technology Department has developed a test environment so that companies can analyze whether their IT developments are working correctly. Furthermore, in response to the request made by several companies that those that had already sufficiently developed their computer systems should not have to wait until 1 January 2017 to begin providing information, Mr Rufino comments that it is expected that by the end of the year, although not on an obligatory basis, companies that so wish will be able to begin providing information.

Regarding exports, the Director points out that in the Draft Royal Decree for the modernization, improvement and promotion of the use of electronic means in the management of the Value Added Tax, which was submitted to public information on July 31 and which Currently pending the report of the Council of State, it is stated that the information to be provided will be the invoice data and not the DUA data.

Mr. Rufino also states that a document with the validations of the billing records requested by the companies software , with which the Tax Agency has held a meeting, is pending finalization.

Finally, Mr. Rufino states that, given that companies have pointed out that one of the elements of Project SII that introduces greater difficulties is the elimination of the summary entry in simplified tickets, the Tax Agency has decided to establish initial flexibility, so as to make it easier for companies to undertake the project.

Working Group on Tax Regulation Analysis and Conflict Reduction

Mr. Luis María Sánchez González, Director of the Department of Financial and Tax Inspection, first comments that the Working Group has met once in this second half of the year, with broad participation from both companies and the Tax Administration. He added that at the last plenary meeting of this Forum, companies were asked to send the Tax Agency a document with the issues they considered of interest to be analyzed by the Working Group. In this regard, a wide variety of issues were discussed at the meeting. Specifically, the issue of the deductibility of impairment losses in the depreciation of tangible fixed assets was discussed and the possibility of making a query to the General Directorate of Taxes was raised.

The next issue to be studied by the Working Group was the final content of the CbC Report, incorporado ya a nuestra normativa mediante la Ley 27/2014, del Impuesto sobre Sociedades, y desarrollado por su Reglamento, y que está recogido como uno de los resultados más importantes de la acción 13 de BEPS. The companies insisted that the Administration draw up a ministerial order specifying both the content of the exchange of information and the procedures.

On this subject, the Director of the Inspection Department points out that the Order will probably be issued in 2016, once information is available on the progress of the actions in this area in the different jurisdictions. The report also indicates that the Group's meeting highlighted the need for the ministerial order to clarify the concepts included in the Regulations and which require further development. To this end, it was agreed that the companies would prepare a document containing the issues they considered most doubtful or in need of clarification.

The Director of the Inspection Department goes on to point out that more specific issues were also discussed at the meeting:

• In relation to the non-deductibility in certain cases of expenses generated by the delivery of shares of the parent company to employees of the subsidiary, the Central Delegate of Large Taxpayers stated that this regularization had not occurred on a general basis and had only been carried out in very specific and unusual situations, in which the lack of adequate documentary support had been detected.

• In relation to the valuation of income in kind derived from the use of motor vehicles for private purposes, it was pointed out that there is a presumption, included in the VAT Law , of impact on business activity or professional of 50%, and that at the moment no regulatory modification is planned. It was also recalled that the Tax Agency may, upon request, issue a prior valuation agreement regarding remuneration in kind.

• Regarding the amendments introduced in the General Tax Law, mainly in articles 66 bis and 115, the following clarifications were made: The doctrine of own acts binds the Administration, as long as the principle of legality is not violated. The Administration always tries to respect the administrative precedent, not modifying previously made assessments, unless they were not correct due to unknown circumstances at the previous time, in which case the liquidation proposals would be adequately motivated. A different issue is the possibility of verifying facts generated in prescribed years but which have an impact on non-prescribed years, where the task of the Administration consists of analyzing at the present time the consequences of an operation carried out in the past, for which no qualification was produced. It was proposed to prepare a document that would clarify the issue of the doctrine of own acts, collecting the observations of the companies.

Excise Tax Working Group

Ms. Pilar Jurado Borrego, Director of the Customs and Excise Department, explains that during this second semester the Group has met once and the following matters were discussed:

• In relation to the hydrocarbon sector, the formal obligations of the refineries were analyzed for improvement and updating and, sharing the same philosophy of the SII project, it was proposed to begin working on the study of a procedure that would allow replacing the current communication system with a standardized system through the Electronic Headquarters of the Tax Agency.

• Regarding the electricity sector, the latest modification of the Electricity Tax was reported, which came into force on January 1, 2015 and which means that this tax falls on consumption. The doubts that were raised were resolved based on the interpretation of the General Directorate of Taxes of article 94.7 of the Law on Special Taxes, regarding the exemption in the Tax on Electricity for electrical energy destined for the production, distribution and transport of electricity, in the sense that it is directed to companies that have their own generation and not to those that are buying electricity from others. On the other hand, the interrelation between the regulation of self-consumption made in Royal Decree 900/2015, of October 9, and the application of the exemption was also discussed, for which it is necessary to refer again to article 94. Finally, companies also raised questions of a management and census nature for the Group to study.

The President then opened the floor for the representatives of the Forum's member companies to make any comments they considered appropriate. As none were made, he moved on to the next point on the agenda and gave the floor to Mr. Ignacio Huidobro Arreba, Central Delegate for Large Taxpayers.

5. Conclusions of the Cooperative Relations working group

Mr. Ignacio Huidobro begins by making a brief note on the development of the document “Conclusions of the Cooperative Relations working group”: In June 2014, the Tax Agency presented the Group with a document containing 34 proposals aimed at analysing the degree of compliance with the Code of Good Practices, the consequences of compliance or non-compliance with the Code and at reinforcing the greater demands for transparency of information and good tax governance. Since then, the Working Group has held five meetings and had the opportunity to present the document at the previous plenary session of the Forum for comment. The document was then referred back to the Working Group for comments, and an agreement was reached on it at the end of October.

The starting point for preparing the document was that the Code of Good Tax Practices has been an effective instrument for improving the relationship between the Tax Agency and companies. However, there was a clear need to undertake voluntary actions aimed at making progress in its implementation and development, in line with the same guidelines adopted in other codes of conduct and, specifically, in the Code of Good Practices for Listed Companies.

The Central Delegate goes on to explain that the Working Group's conclusions have three lines of work: The first is the monitoring and assessment of conduct in compliance with the Code, where a catalogue of conduct by the Tax Agency and companies has been determined, as well as ongoing monitoring and evaluation practices during the development and completion of the procedures and, also, the treatment of cases of compliance and non-compliance with the Code within the inspection procedure, as this is the most significant and the longest. The second line involves strengthening good practices in corporate tax transparency, and the third line of work consists of a series of commitments to strengthen the Code.

Mr. Ignacio Huidobro points out that, with regard to the catalogue of conduct for compliance with the Code by companies, it should be noted that: the entity's tax strategy is approved by the Board of Directors and is known to all of its executives; that a risk management policy exists and includes measures to mitigate risks; that the company has not used opaque structures or that it uses information systems and internal control of tax risks, integrated into the company's general internal control systems. In addition, another relevant conduct is that at the beginning of the procedures the company offers information about its business and its tax behavior.

He states that, with regard to the catalogue of conduct of the Tax Agency, the following should be highlighted: the establishment of a communication channel to display the administrative and jurisprudential criteria used, which the Tax Agency in its actions will try to take into account said criteria in the terms provided for in section 2.1. of the Code of Good Tax Practices; will inform companies as soon as possible of any facts that may be regularised, thereby facilitating appropriate discussion of them during inspection activities and establishing in each case the most appropriate form of communication with the company to ensure this circumstance.

The document also includes monitoring and evaluation practices. Firstly, it is possible to request an assessment of compliance with the Code during the procedure and at its conclusion. The assessment must generally involve the company's tax manager, the Head of the Tax and Customs Control Unit or the Head of the Inspection Unit affected and, where applicable, the corresponding Chief Inspector and the Head of the Team or Unit that has been acting. As regards the treatment of cases of compliance/non-compliance, the document states that the AEAT and the companies may agree to record the assessment of compliance with the Code within the scope of the procedures for applying taxes. In the event of non-compliance with the Code in the inspection procedure, an analysis will be carried out within the scope of the DCGC or the special Delegation, with the participation of the Head of the Tax and Customs Control Unit or the Inspection Unit affected, as well as the Central or Special Delegate and the company representative and, if non-compliance persists, there is the possibility that the General Director of the Tax Agency informs the Board of Directors of this circumstance.

Likewise, in the event of non-compliance by the AEAT , the company may request the Director of the Department of Financial and Tax Inspection to adopt the relevant measures to ensure that its effects are corrected. The document also establishes that the Tax Agency and the companies will inform, at least once a year, the Monitoring Committee of the CBPT of the cases and the types of conduct that could be considered as non-compliance with the recommendations of the Code.

Regarding the reinforcement of good practices in corporate tax transparency, the Central Delegate states that the aim is to promote early knowledge and mutual evaluation of tax policy and tax risk management by companies, anticipating the analysis of their behaviour. The objective is for the company to provide information, preferably before the end of the regulatory deadline for filing declarations, to the extent that it is available, on the following aspects: presence in tax havens and its explanation; international tax schemes of the group with reference to financing, intangibles and management fees, así como al grado de congruencia con los principios de las acciones BEPS de la OCDE; cambios significativos en las estructuras holding y subholding; explanation of the most significant corporate operations; Group fiscal policy approved by the governing bodies; catalogue of operations to be submitted to the Board of Directors; mention of tax compliance in the Management Report or Integrated Report of the entity; etc. In addition, each company and the AEAT , by mutual agreement, will establish the content and the way of providing this information.

Finally, the Central Delegate points out that the last part of the conclusions document includes other commitments to strengthen compliance with the Code, among which it highlights: dissemination by the Tax Agency of the general criteria applied in control procedures; establishment of a standardized format for the provision of documentation; adoption by the AEAT of periodic internal communication actions to disseminate the commitments of the Code; organization of regular meetings with companies and inclusion in the Annual Activity Report of the Tax Agency of a section dedicated to the actions carried out in the area of cooperative relations.

The President of the Forum takes the floor and highlights the importance of the document, which he hopes will mark the future relationship between companies and the Tax Agency and reinforce the role of the Monitoring Commission of the CBPT . He also said that the document has the approval of this Forum and will be published on the Tax Agency's website. The floor is then opened for interventions so that company representatives can make any comments they consider appropriate.

Mr. Jaume Menéndez Fernández, Director of Taxation at Gas Natural, spoke first and explained that he hopes that the Group's work will continue and that one of the points that needs to be worked on is legal security from the start of an operation, without having to wait for a resolution from the General Directorate of Taxes, given that the timeframes of a company and those of the Tax Administration are not the same.

Mr. Miguel Ferre agrees and comments on the case of Repsol as an example of a cooperative relationship. Prior to structuring a particular transaction, Repsol presented the business model to the Central Delegation of Large Taxpayers so that actuaries could understand the tax solution that had been adopted. The President adds that this is the approach, preventive control instead of ex post control.

Next, Ms. Carmen Alonso Peña, Tax Advisor at Banco de Santander and collaborator of the Technical Secretariat, takes the floor. After thanking the President and members of the Forum for their words, she proposes that companies should make these principles and this catalogue of conduct known to all affected areas, which is not just the tax area. And, on behalf of the Tax Agency, she requests greater speed and that the conclusions be transmitted to all levels of the Administration.

Regarding the Special Taxes Working Group, Ms. Carmen Alonso stated that she found the working mechanism and the atmosphere established between the members of the meeting she attended last October to be very efficient. In addition, with regard to the Working Group on Tax Legislation Analysis and Conflict Reduction, he points out that he agrees with the Director General that very positive progress has been made. The Commission continues to confirm its willingness to prepare and coordinate the documents to which the companies have committed themselves in the meetings of the various Working Groups.

Mr. Miguel Ferre takes the floor to thank Carmen Alonso for joining the Forum's Technical Secretariat. It also expresses the Administration's firm desire that the ideas contained in the conclusions document be known and incorporated into all its actions, although, as this is a cultural change, its implementation will take some time.

Mr. Jacinto Esclapés Díaz, Deputy Secretary of the Board of Directors of Amadeus It Holding, then asks whether the Administration has the capacity to agree with each of the companies adhering to the Code of Good Tax Practices on the type of procedure for providing information and in which year it will be put into practice.

Mr. Ignacio Huidobro Arreba took the floor and stated that the Tax Agency is in a position to agree on the procedure for exchanging information before filing the Corporate Tax, which will be in July 2016, with those companies that voluntarily decide to do so.

Next, Mr. Luis Gimeno Valledor, Secretary General of Acerinox, asks to speak and says that the implementation of the content of the conclusions document seems to him to be something desirable and that, furthermore, it can be done as soon as possible in order to include it in the next annual corporate governance report.

The Central Delegate takes the floor and states that letter “H” of the annual corporate report expressly states adherence to the Code of Good Practices and can be enriched with whatever the company wishes to state regarding its behavior in this matter.

Next, Mr. Daniel Gómez-Olano, Director of the Tax Department at FCC, asks to speak and, after positively evaluating the Conclusions document of the Cooperative Relations Working Group, states that he does not see expressly specified in this document the way in which the tax administration would seek to guarantee greater and effective legal security for taxpayers, in fair reciprocity to the exercise of tax transparency and good faith on their part. It considers that this express formalization of the benefits of the cooperative relationship model would allow its benefits to be better explained to the respective Boards of Directors of the companies. It also highlights the importance of having an interlocutor in relations with the Tax Agency who really knows the company and acts as a mediator in certain situations, in line with what is provided for by some cooperative relationship models adopted by countries in our environment.

Mr. Miguel Ferre states that this is a matter of voluntary subscription but, beyond the reputational value, it allows for an early vision of the possible risks and, thus, reduces conflict, an issue that seems to him to be a good argument to present to the Boards of Directors. He states that the cooperative relationship is based on good faith and it is easily understandable that the Tax Agency will not allocate the scarce resources it has to re-analyze previously studied actions.

In this regard, Mr. Ignacio Huidobro explains that he does see a clear benefit in the cooperative relationship, the key to which lies in the fact of having the possibility of jointly analyzing with the company, in a preventive manner, its fiscal behavior, which will have consequences in the planning and, of course, does not imply that there is always an agreement.

Next, the General Director of the AEAT takes the floor and comments that he believes that significant progress has been made in establishing mechanisms that improve the cooperative relationship. However, he added, it is necessary to continue making progress in this area and for companies to gain confidence in the actions of the Administration. To achieve this, the Administration must establish clear criteria and coordinate them, which provide companies with security not only legally, but also from the point of view of the functioning of the organization itself. Finally, he points out that the Administration has the unequivocal will to make progress in this matter.

Mr Alberto Martín Moreno, Tax Director of CEPSA, asks for the floor and states that he values the conclusions document very positively but misses a greater specification of the rules in case of non-compliance and, in relation to the issue of legal certainty, points out that it would have been a good opportunity to guarantee a certain access by companies to the General Directorate of Taxes. CEPSA's experience is that the Inspection has its criteria and, in parallel, the General Directorate of Taxes has different ones.

In this regard, the Central Delegate points out that section A.2.1) of the document, which includes the catalogue of compliance conduct by the AEAT within the scope of general procedure, states verbatim that “The AEAT in its actions has tried to ensure that administrative precedents are taken into account and has applied administrative and jurisprudential criteria in its actions, in the terms of Section 2.1 of the Code”, and that said section of the Code establishes that the Tax Agency is obliged, in case of doubt and in the absence of doctrine, to request a report from the General Directorate of Taxes.

The President intervenes and indicates that access to the body that according to the law has the power to interpret the norm is incorporated in the document and that he sees no sense in it being an interlocutor when what is being discussed is the application part of the tax system.

Next, Mr. Ángel Martín Gómez, Fiscal Director of Telefónica, asked to speak. He stated that the conclusions document had been drafted in a very lively manner and had involved many discussions. He also comments that it constitutes an instrument in terms of transparency and reputation that opens a new stage in the Forum of Large Companies and represents a relaunch of the role of the Monitoring Committee of the Code of Good Tax Practices.

Mr. Ángel Martín also explains that a critical point, in his opinion, as has already been stated in previous meetings of this plenary, is the figure of 5% taxation of large companies, which is always widely discussed in various media. He requests that this Forum work, including by creating a working group for this purpose, to clarify this information, so that the Tax Agency can present it without making unfair interpretations.

In this regard, the President states that the Tax Agency reflects this data with its corresponding explanation and that it has been calculated in the same way for a number of years, so if the way of calculating it were to change, this would also have to be explained. He added that in his opinion it is the company's job to clarify that the tax contribution is not limited to corporate tax. A company that has adhered to the Code of Good Tax Practices and provides the Tax Agency with information on the operations it carries out can also report on other aspects, such as, for example, that it pays taxes in other countries and surely with nominal rates higher than those in Spain.

6. Next call

The President points out the benefits of maintaining this half-yearly cadence that has been gradually recovered in the Plenary meetings. He then opened the floor for interventions and, as none were made, stated that the 12th meeting of the Plenary would be convened in the next six months.

7. Other considerations, requests and questions

The President said that, without prejudice to any additional issues that may be raised at this time, the fundamental issues had already been discussed under the fifth item on the agenda.

As no comments were made by the attendees, the President, after thanking everyone, closed the 11th plenary session of the Large Business Forum and said goodbye until the next meeting.