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New regulations for 2015

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Main changes in Regulations on Corporation Tax

Royal Decree 634/2015, which approves the Corporate Income Tax Regulations (hereinafter RIS), fulfills the dual function of adapting to the new parameters established by Law 27/2014 on Corporate Income Tax (LIS) and update the rules set out in the regulatory standard currently in force.

The main changes introduced by this Royal Decree in relation to Royal Decree 1777/2004, which approved the old RIS, are the following, stated succinctly:

  • Amortization:

In the area of ​​amortization, the following is noteworthy:flexibility contained with respect to the possibility of submit special amortization plans at any time within the amortization term of the asset, whereas until now this possibility was restricted to the three months after the start of the amortization term.

  •  Related entities and transactions:

 Chapter V contains the main novelty of this Regulation, incorporating substantial modifications in relation to related entities and operations.

 Country-by-country information:

At present, it is absolutely essential to echo the conclusions that have been adopted in the so-called "BEPS" Action Plan, that is, the Action Plan against taxable base Erosion and Profit Shifting, which is being developed within the framework of the OECD. Based on this, country-by-country information is introduced as a new feature, such as instrument that allows the evaluation of risks in the transfer pricing policy of a business group, without in any case said instrument being able to serve as a basis for the Tax Administration to make price adjustments. This information will be required from 2016 onwards, under the terms and conditions set by the OECD.

Country-by-country information will be required Entities resident in Spanish territory that have the status of dominant entities of a group, defined according to article 18.2 LIS, and are not at the same time dependent on another entity, resident or non-resident. Likewise, this information must be provided by entities resident in Spanish territory that are directly or indirectly dependent on an entity not resident in Spanish territory that is not itself dependent on another entity or permanent establishments of non-resident entities, provided that any of the following circumstances occur:

a) That they have been designated by their non-resident parent entity to prepare said information.

b) That there is no country-by-country reporting obligation in terms analogous to that provided for in this section with respect to the aforementioned non-resident entity in its country or territory of tax residence.

c) That there is no automatic exchange of information agreement, with respect to said information, with the country or territory in which the aforementioned non-resident entity is tax resident.

d) That, where there is an agreement for the automatic exchange of information regarding said information with the country or territory in which the aforementioned non-resident entity is tax resident, there has been a systematic non-compliance with it that has been communicated by the Spanish tax administration to the dependent entities or permanent establishments resident in Spanish territory within the term provided for in the next paragraph.

The country-by-country information will result requiredexclusively when the net amount of the turnover of the group of persons or entities that are part of the group, in the 12 months prior to the start of the tax period, be at least 750 million euros.

Specific documentation for related-party transactions:

The specific documentation for related-party transactions referred to in the LIS is modified, completing, on the one hand, the necessary simplification of this type of documentation for entities with a net amount of the turnover lower than 45 million euros and adapting, on the other hand, to the content of the documentation established by the OECD. At this point, it is worth noting that while the documentation required of medium and small entities is considerably reduced, significantly simplifying their administrative burdens, the transparency requirements that current good governance demands are increased with respect to multinationals.

In the case of persons or entities that meet the requirements of Small BusinessThe simplified specific documentation may be considered completed through the standardized document prepared for this purpose by Order of the Minister of Finance and Public Administrations. These entities shall not be required to provide the comparables referred to in Article 16.4.d).

He simplified content of the specific documentation will not apply to the following operations:

a) Those carried out by taxpayers of Personal Income Tax, in the development of an economic activity, to which the objective evaluation method applies with entities in which they or their spouses, ascendants or descendants, individually or jointly among all of them, have a percentage equal to or greater than 25 percent of the share capital or own funds.

b) Business transfer operations.

c) Transactions involving the transfer of securities or shares representing participation in the equity of any type of entity not admitted to trading on any of the regulated securities markets, or that are admitted to trading on regulated markets located in countries or territories classified as tax havens.

d) Real estate transfer operations. e) Transactions involving intangible assets.

However, in the case of Small Businesses or natural persons and where the operations are not carried out with persons or entities resident in countries or territories considered as tax havens, the specific documentation obligations should not include the comparability analysis referred to in Article 17 RIS.

Determination of the market value of related-party transactions: comparability analysis :

Chapter VI establishes the rules for determining the comparability analysis required in the specific documentation, where it is established that the circumstances of the related transactions will be compared with the circumstances of transactions between independent persons or entities that could be comparable. To do this, the relationships between the linked persons or entities and the conditions of the operations to be compared must be taken into account, considering the nature of the operations and the conduct of the parties.

To determine whether two or more transactions are comparable, the following circumstances will be taken into account, to the extent that they are relevant and the taxpayer has been able to reasonably obtain information about them:

a) The specific characteristics of the goods or services that are the subject of the related transactions.

b) The functions assumed by the parties in relation to the operations under analysis, identifying the risks assumed and weighing, where appropriate, the assets used.

c) The contractual terms from which, where applicable, the operations are derived, taking into account the responsibilities, risks and benefits assumed by each contracting party.

d) The economic circumstances that may affect related-party transactions, in particular, the characteristics of the markets in which the goods are delivered or the services are provided.

e) Business strategies.

Likewise, any other relevant circumstances about which the taxpayer could reasonably have obtained information must also be taken into account, such as, among others, the existence of losses, the impact of decisions by public authorities, the existence of location savings, integrated groups of workers or synergies. In any case, the internal or external comparison elements that should be taken into consideration must be indicated.

Verification of related transactions:

The procedure for verifying related-party transactions is updated, taking into account that it is not limited exclusively to a valuation scenario. When verifying related-party transactions not be the sole object of the regularization that is to be carried out in the audit procedures in which it is carried out, the assessment proposal that derives from it will be documented in a different record of those that must be formalized by the other elements of the tax obligation. The assessment resulting from this document will be provisional.

Property restitution:

Finally, this chapter regulates the option of avoid secondary adjustment through property restitution. To do this, the taxpayer must justify such restitution before the assessment is issued that includes the application of the secondary adjustment.

  •   Special regimes:

Title III is dedicated to the rules for the application of certain special regimes. Among them all, the adaptation of the formal obligations corresponding to the tax consolidation regime to the new delimitation of the consolidation perimeter.

  •   Conversion of deferred tax assets into receivables from the Public Treasury.

Finally, a new Chapter III is added to Title IV to regulate the procedure for offsetting and crediting deferred tax assets, when they are converted into receivables for the Public Treasury.