The Resolution of 6 February 2023 of the Directorate-General of the State Tax Administration Agency (Agencia Estatalde Administración Tributaria "State Tax Agency") enacts the 2023 Annual Tax and Customs Control Plan with the guidelines of State Tax Agency strategies for the prevention and control of tax andcustoms fraud.

As usual, transfer pricing investigation continues to be a priority, leading to tax audits and regularizations resulting from the incorrect assessment of transfer pricing in multinational groups. Below we summarize the measures outlined for 2023:

360ºstrategy.

With the experience and knowledge acquired in recentyears, the State Tax Agency makes effective use of the information held by theTax Administration and acts in a coordinated manner with respect to transferpricing in all procedures that a taxpayer may have and thus avoid controversiesand inefficiencies ensuring the long-term tax compliance of multinationalsoperating in Spain.

Recurrent issues.

Once again, it identifies related-party transactionsconsidered to be of high fiscal risk on which tax authorities efforts andresources will be focused:

-            Continued losses.

-            Valuationof intra-group transfers or assignments of different assets (especiallyintangible assets).

-            Business restructuring.

-            Taxdeducted expenses that may erode the tax base – e.g. royalties for the transferof intangibles or for intra-group services.

-            Financialrelated-party transactions.

International co-operation with other countries tax agencies.

International co-operation between foreign taxagencies continues to be crucial by promoting the following procedures:

-            Joint audits: The transposition of Council Directive (EU) 2021/514will boost to joint tax audits with other EU Member States,

-            Prior valuation agreements or rulings: Mechanism to provide certainty to international taxation, aligned withfree competition, avoiding costly inspections.

-            Mutual agreement procedures:Efficient dispute resolution mechanism between two tax Member States’ TaxAgencies when double taxation may occur non conforming with tax.

-            ICAP (International Compliance Assurance Programme) International Inspection Compliance Program and ETACA (European Trust and Cooperation Approach): Participation in the multilateral risk assessmentprogram and the examination of the transparency reports provided for in the Code of Good Tax Practices submitted by companies adhering to it will continue.Regulatory arrangements relating to Pillar I will be sought.

-            Sources of information and risk analysis used by the Spanish Tax Agency: exchange of information on the OECD/G20 Project'sCountry by Country report will continue to avoid base erosion and profitshifting.

Otherrelated areas of action.

-            Withholdings on account of Non-Resident Income Tax: Tax audits focused on large companies that paydividends, interest and royalties to non-residents without PE, especially todetermine whether or not the recipient of such income is a beneficial owner andany abusive use of the EU regulations on the freedom of movement of capital.

-            Identificationof structures and conducts thatunduly benefit from the low taxation of certain territories, tax regimes orstructures, which can be replicated or standardized by multiple taxpayers.

-            Taxloss carryforwards offsetting.

-            Fulfilmentor requisites to qualify for group tax consolidation.

-            Location: Focus will be set to assess whether the choice forlocation in a jurisdiction by a company representing a Group may artifiallycondition, distort the exercise of the powers of the Spanish State TaxAgency.  

-            Taxagencies of regions with special tax systems: coordination will be intensified on related-partytransactions in direct taxation.

Conclusion:

Transfer pricing continues to be one of the priorityobjectives of the Tax Agency, reinforced by the increasing amount ofinformation available, mechanisms for the international exchange of informationand the use of more sophisticated analysis tools such as the calculation engine(Companies Web for Groups) and the multi-period processor, providing tools foraccurate tax calculation in the carryforward of tax credits.

Considering the strategic lines of the Spanish StateTax Agency, it is essential for Groups of companies to anticipate, by reviewingtransfer pricing policies to confirm that prices used are free market-price,having solid, up-to-date set of records and back-up documents (contracts,invoices and supporting documentation and evidences, accounting, annualaccounts, tax forms, defense files, etc.) that help justify the valuation ofrelated-party transactions in the event of a tax audit.

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