Velcro Europe, S.A., a Spanish manufacturing company within the Velcro Group, paid royalties for the use of trademarks and technology. The intellectual property was legally owned by Velcro Industries B.V., which is based in Curaçao, while Velcro Holding B.V., which is based in the Netherlands, acted as the European licensing and collection entity. Velcro Europe paid royalties to the Dutch entity and applied for an exemption from Spanish withholding tax under the EU Interest and Royalties Directive, treating Velcro Holding BV as the beneficial owner of the income. However, the tax authorities denied the exemption, arguing that Velcro Holding BV was merely an intermediary with limited substance and decision-making capacity, and not the beneficial owner of the royalties. According to the authorities, the royalties were economically destined for the Curaçao entity, meaning that the conditions of the EU Directive were not met. Consequently, the authorities ... Read more

XZ España SA, a Spanish subsidiary of a multinational consumer goods group, underwent a corporate income tax audit for the 2015–17 financial years. The controlled transactions included intra-group loans, participation in cross-border and domestic cash pooling arrangements, and the provision of contract manufacturing services to related entities. For manufacturing activities, the group applied the TNMM with EBIT over total costs as the profit level indicator, supported by a benchmarking study. While the tax authorities accepted the method and profit indicator used for manufacturing services, they rejected part of the comparable set used by the taxpayer and recalculated the interquartile range. Based on this, they concluded that the taxpayer’s profitability fell outside the arm’s length range and adjusted the margin to the median. Adjustments were also made in relation to intra-group loans and cash pooling. These included the use of the group credit rating, the rejection ... Read more

Bunge Iberica SA participates in the group’s cash pooling system, as both a borrower and a provider of funds. Following an audit, the tax authorities had issued a notice of assessment in which the interest rates on deposits and withdrawals in the cash pool had been adjusted and determined symmetrically on the basis of a group credit rating. Bunge Iberica SA filed a complaint which was rejected by the Tax Court in a decision issued in October 2019, and an appeal was then filed with the National Court. In March 2023 the National Court also rejected the appeal and confirmed the tax assessment. An appeal was then filed by Bunge Iberica with the Supreme Court. Judgment The Supreme Court upheld the decison of the National Court and dismissed Bunge Iberica’s appeal. Excerpt in English “On this occasion, the function of the organising entity is limited. Its ... Read more

RPC Superfos Pamplona purchased polymers via a central European purchasing system. Polymers are the group’s main raw material, accounting for around €20 million of manufacturing expenses each year — approximately 45 per cent of the total. The tax authorities opened an audit because the purchase terms agreed with each supplier were unknown, the base price and premiums were not broken down by polymer type on the invoices, discounts to the purchasing centre were not shown on the manufacturers’ invoices, and many discounts appeared implicitly or without a clear calculation trail. A change in the methodology for remunerating the purchasing centre also caused remuneration to increase tenfold, making it crucial to verify these costs and their transfer pricing support. In order to verify the deductibility of purchase expenses and the adequacy of the purchasing centre’s remuneration under transfer pricing rules, the tax authorities requested the service ... Read more

Nutreco España, S.A. had taken on significant debt to finance an acquisition of shares by other foreign group companies. Its role in the acquisition was limited to the channelling of funds. The debt consisted of an intercompany loan of 240 million euros granted by Nutreco Nederland B.V. and an amount of 100 million euros from a centralised treasury system (cash pool) within the Group. Interest payments on these loans totalled more than 30 million euros for the years 2011-2013, which Nutreco España, S.A. deducted from its taxable income. The tax authorities found that the financial arrangement was artificial and put in place only for the purpose of obtaining tax benefits. Deductions of expenses related to the debt was therefore denied and an assessment of additional taxable income issued. An appeal was filed Nutreco España, S.A. that ultimately ended up in the Supreme Court after being ... Read more

IHLE ESPAÑA (later NEX TYRES) purchased tyres from its German parent company (IHLE BB) using what it claimed was the CUP method. It claimed that IHLE BB sold the tyres at the same price as it paid to third party suppliers, simply passing on additional transport costs and a small administration fee. The tax authorities rejected the CUP method used by IHLE and instead applied a TNMM, selecting a group of EU car parts wholesalers as comparables, using statistical tools to determine an interquartile range and then adjusting IHLE ESPAÑA’s profit to the median. IHLE ESPAÑA appealed. Judgment The Court ruled largely in favour of the tax authorities, but partially upheld IHLT’s appeal. The Court ruled that the “CUP method” used by IHLT was inconsistent because, once all indirect costs were added to the price, IHLE appeared to buy the tyres at a higher total ... Read more

“Group Rating SA” was subject to an assessment in relation to intra-group loans. The tax authorities found that the method used to determine the arm’s length interest rate was reasonable, but that the credit rating was incorrect as it did not take into account that “Group Rating SA” was part of a larger group. According to the tax authorities, group membership may have an impact on the credit rating of the members of the group, see section 7.13 of the 2010 TPG and chapter X, paragraphs 10.81 and 10.82 of the 2022 TPG. In the appeal, “Group Rating SA” argued that the tax authorities’ interpretation was incorrect. Judgment of the court The TEAC dismissed the appeal and ruled in favour of the tax authorities. The court concluded that it was reasonable to assume that “Group Rating SA” would receive financial support from other members of ... Read more

“TW XZ SA” was subject to an assessment in relation to intra-group loans and cash pools for Fiscal Year 2013 – 2016. The tax authorities found that the credit rating used by the company (BBB) in determining the interest rate was incorrect as it did not take into account that “TW XZ SA” was part of a larger group. The credit rating of the company was instead determined to be (A). Furthermore the tax authorities found that the remuneration of a group cash pool leader could be determined as 5% of its cost base by reference to guidance on low value adding intra-group services. A complaint was filed by “TW XZ SA”. Judgment of the court The Court dismissed the complaint and ruled in favour of the tax authorities. Click here for English translation Click here for other translation ... Read more

At issue was whether or not a proportionate share of management and general administrative expenses incurred by the head office in Spain should be allocated to its PE in Algeria. The tax authorities (appelante) argued that, in general, these expenses cannot be individualised and, therefore, a proportional criteria should be used to determine the amount to be allocated to the Algerian PE. Compañía Española de Petróleos, S.A. argued that only management and general administrative expenses related to the purposes of the Algerian PE should be attributed to it. According to the company, the tax authorities had not carried out an appropriate analysis when examining what percentage of these expenses related to the Algerian PE. Judgment of the Supreme Court The Supreme Court decided in favor of Compañía Española de Petróleos S.A. Excerpts (English translation) “The tax authorities point out that in commercial groups there are ... Read more

Tomas Bodero S.A. added a 4% fee when re-invoicing goods purchased from unrelated manufacturers to its Panamanian subsidiary. The transfer pricing documentation stated that “this fee (4%) is very similar to the fee that brokers in the sector usually charge for brokering imports of goods, so it can be concluded that a market price is charged for the services that the parent company provides to the subsidiary”. Following an audit, the tax authorities issued a tax assessment which, among other adjustments to the taxable income, also adjusted the fee received from the subsidiary. The arm’s length fee for the service provided was set at approximately 26% of the purchase price. Appeals were filed by Tomas Bodero S.A. which ended up in the High Court. Judgment of the Court In regards of procurement fee, the Court ruled in favor of Tomas Bodero A.S. Excerpts “….the method ... Read more

In 2009 and 2010 Global Nory, S.L. distributed a dividend of 7,000,000 euros to its parent company resident in Luxembourg, without declaring withholding taxes, as it considered that the dividend was exempt. In 2013, Global Nory, S.L. was notified of the commencement of general inspection proceedings, referring, among other items, to the dividend payments, and in 2014 the final assessment was issued, resulting in additional withholding taxes of 700,000 euros and 138,753.43 euros to late payment interest. The assessment was based on the following facts: The only relevant asset of Global Noray SL is a 5% stake in the listed company Corporación Logística de Hidrocarburos. This shareholding was acquired for a sum of 176,500,000 euros. Global Noray, S.L.’s income consists mainly of dividends received on these shares. Global Noray, S.L., is wholly owned by PSP Eur SARL, which in turn is wholly owned by PSP ... Read more

Institute of International Research España S.L. belongs to the international group Informa Group Brand, of which Informa PLC, a company listed on the London Stock Exchange, is the parent company. In 2006 it had entered into a licence agreement (“for the use of the Licensed Property, Copyright, Additional Property Derived Alwork, the Mark and Name of the Licensor for the sale of Research and Dissemination Services”) under which it paid 6.5% of its gross turnover to a related party in the Netherlands – Institute of International Research BV. Furthermore, in 2007 it also entered into a “Central Support Services Agreement” with its parent Informa PLC according to which it paid cost + 5% for centralised support services: management, finance, accounting, legal, financial, fiscal, audit, human resources, IT, insurance, consultancy and special services. Following an audit, the tax authorities issued assessments of additional income for the ... Read more

Ferroli España, S.L.U. is a Spanish manufacturer manufacture of cookers and heaters. In FY 2010 and 2011 the company had various transactions with other companies in the Ferroli Group and reported negative profit margins on these transactions. According to the company this was due to the financial crises in Spain. Following an audit, the tax authorities issued a notice of assessment where the profit of Ferrolia had been adjusted resulting in additional taxable income. The TNN method had been used and profits were adjusted to the median. An appeal was filed by Ferroli. Judgment of the Court The Court largely ruled in favor of the tax authorities, but according to the Court, an adjustment to the median could only be made where the tax authorities established the existence of comparability defects. Since sufficient proof of such defects had not been established, the adjustment was reduced ... Read more

Following an audit, the Spanish tax authorities issued a notice of assessment where the profit of Electrolux España had been adjusted resulting in additional taxable income. The related party transactions resulting in the adjustment were Manufacturing costs under a manufacturing contract Profit margin under a distribution contract Deductibility for restructuring costs Pricing of a warehouse rental agreement. A complaint was filed by Electrolux España with the TEAC which upheld the part of the assessment referring to related-party transactions. An appeal was then filed by the company with the National Court. Judgment of the Court The Court ruled parcially in favor of the tax authorities and parcially in favour of Electrolux España. Excerpts “The Inspectorate therefore concludes that “where a group, as in this case, qualifies its contract manufacturer as a low-risk manufacturer and, in turn, this low-risk manufacturer sizes its plant with appropriate investments to ... Read more

Bunge Iberica SA participates in the Group’s cash pooling system, as both a borrower and as a provider of funds. The tax authorities had issued a notice of assessment in which the interest rates on deposits and withdrawals were adjusted and determined on the basis of a group credit rating. Bunge Iberica SA filed a complaint with the Tax Court, which was rejected in a decision issued in October 2019, and an appeal was then filed with the National Court. Decision of the Court. The National Court rejected the appeal of Bunge Iberica SA and confirmed the tax assessment. Excerpt “As the ONFI report states, and the Board agrees, the management and administration functions performed are not comparable to those performed by a financial institution, “which borrows money in order to invest it for its own account, either through loans or any other operation, the ... Read more

SGGE W T is a Spanish branch of SGG that carries out distribution and marketing activities related to the information technology network products and services. SGG is part of the KF group which “is an international group that provides solutions and services in the Information Technology (IT) sector, starting its activity in . .. as a distributor of access and communications networks”. The group “is the result of several corporate operations, mainly company acquisitions and mergers carried out to increase its share in world markets” and “is mainly organized in three divisions (SGG, QR and …) according to the IT areas (Technology, Integration and Consulting) in which they operate”. Following an audit of FY 2015 and 2016 the tax authorities issued assessments of additional income to the Spanish branch. One of the issues identified was SGGE’s remuneration for its sales and marketing activities. According to ... Read more

In a request for a binding consultation the question raised was whether activities carried out in Spain resulted in the existence of a permanent establishment. The General Directorate considered that an enterprise cannot fragment a cohesive operating business into several small operations and argue that each of these is merely engaged in a “preparatory or auxiliary activity”. The Irish company was considered to have a PE in Spain, as it carried out a significant part of all its activity in Spain – not just simple storage/warehousing, but rather multiple logistics operations. Click here for English Translation Click here for other translation ... Read more

Universal Pictures International Spain SL is a distributor of films on the Spanish Market. It distributes films both from related parties (Universal Pictures) and from unrelated parties. Following an audit, the Spanish tax authorities issued an assessment where the remuneration received for distribution of films from related parties had been compared to the remuneration received from distribution of films from unrelated parties and where the pricing of the controlled transactions had been adjusted accordingly . Not satisfied with the assessment of additional income a complaint was filed by Universal Pictures International Spain SL. Judgment of the Court The Court predominantly held in favor of Universal Pictures International Spain SL. The distribution activities performed in regards of films from related parties were limited risk whereas the activities performed in regards of distribution of films from unrelated parties were fully fledged. Hence the pricing of the controlled ... Read more

Transalliance Iberica SA had priced its controlled transactions for the years 2008-2013 by comparing the gross margin achieved on an overall basis with the gross margins of comparable companies. Following an audit, the tax authorities issued a notice of assessment rejecting the method used by the company due to differences in the treatment of cost items and thus issues of comparability at a gross margin level. Instead, the tax authorities applied the TNMM. The profit was outside the interquartile range and an adjustment to the median was made. Transalliance lodged an appeal. Judgment of the Court The Court largely ruled in favor of the tax authorities, but according to the Court, an adjustment to the median could only be made where the tax authorities established the existence of comparability defects. Since such defects had not been established, the adjustment was reduced to the lower quartile ... Read more

“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables ... Read more

The issue presented before the Spanish Supreme Court is if and how the arm’s length principle apply to the salary of the owner of a consultancy company for personal services provided to an independent company, i.e. if the price agreed for provision of these services to an independent party is a CUP in relation to the salary of the owner. “In order to determine the market value of the services provided by Mr. Primitivo to the company LA REHOS, S.L., is based on the value of the relationship between LA REHOS, S.L. and the third parties from which it obtains the income for the services rendered by Mr. Primitivo with the necessary corrections to obtain the equivalence: those derived from the expenses and costs related to the activity of Mr. Primitivo incurred by or residing in the entity LA REHOS, S. L. and those that ... Read more

“XZ SA” is a Spanish parent of a tax consolidation group which is part of a multinational group. The Spanish group participates in the group’s cash pooling system, both as a borrower and as a provider of funds. The objective of cash pooling agreements is to manage the cash positions of the participating entities, optimising the group’s financial results by channelling the excess liquidity of the group companies that generate it to the group companies that need financing, resorting to third-party financing when the group itself is not able to finance itself. This achieves greater efficiency in the use of the group’s funds, as well as improving their profitability and reducing the administrative and general financial costs of the entities participating in the agreement. The tax authorities issued an assessment in which the interest rates on deposits and withdraws had been aligned and determined based ... Read more

DELSEY España belongs to the French DELSEY-group and sells suitcases and other travel accessories on the Spanish market. The Spanish distributor had declared losses for FY 2005-2010 and was subject to a transfer pricing audit for FY 2011 to 2014. Based on the audit, the tax authorities concluded that the losses in FY 2005-2010 was a result of controlled transactions not being priced at arm’s length. The same was concluded for FY 2011 and 2012. The CUP method and RPM method applied by the taxpayer was found to be inappropriate and was replaced with the TNMM by the tax authorities. An appeal was filed by Delsey España S.A. Judgment of the Court The Court dismissed the appeal and upheld the assessment. Click here for English translation Click here for other translation ... Read more

An appeal before the Supreme Court was allowed to determine whether or not the Spanish State Tax Administration Agency is obliged to notify the Provincial Treasury of the Basque Historical Territories of a transfer pricing valuation adjustments issued to an entity taxed in accordance with the regulations of the Basque Historical Territories. Click here for English translation Click here for other translation ... Read more

Narcea Producciones y Promociones, S.L. (Narcea S.L.) had as shareholders Mr. Emiliano and Mrs. Filomena and their son, Mr. Ismael, a professional footballer, who had an employment relationship with the football club Hércules CF SAD of Alicante. Narcea S.L. purportedly managed the economic rights, the representation fees and the image and TV rights of Mr. Ismael. In relation to the image and TV rights of Mr. Ismael, the tax authorities considered that there had been a related party transaction between Narcea S.L. and Mr. Ismael where these rights had been transferred. In consideration for the transfer, the football club Hercules had paid 40,000 euros in 2010 and 80,000 euros in 2011 to Narcea S.L. According to the tax authorities these payments should instead have been made directly to Mr. Ismael without the intermediation of Narcea S.L. Furthermore, the arrangement had resulted in a fiscal advantage ... Read more

Sierra Spain Shopping Centers Services S.L.U. is part of a multinational group that manages shopping centres. Sierra Spain had deducted expenses for services rendered from a related party in Portugal. According to Sierra Spain, the services were related to strategic management and marketing. The tax authorities considered the expenses non-deductible and issued an assessment of additional taxable income. With respect to the strategic business management services, the tax authorities found that there was no contract between the parties. In addition, the authorities found the justification for the actual provision of services was insufficient. With regard to the marketing services, these were contracted by the Portugal-based entity to an external supplier and subsequently re-invoiced to the related parties receiving the service in Portugal, Brazil and Spain. The tax authorities considered that these services were shareholder costs and therefore not deductible in Sierra Spain. Sierra Spain appealed ... Read more

The Mahou (SAN MIGUEL) S.A Group is active in brewing and sale of beers. Penibética de cervezas y bebidas SL and Andaluza de cervezas y bebidas SL are wholly owned by Cervezas Alhambra SL, which again is owned by MAHOU (SAN MIGUEL) S.A. The main activity of Cervezas Alhambra SL is the distribution and marketing under its own brands of the beer produced by its subsidiaries; that of Penibética de Cervezas y Bebidas SL is the production of beers which, without its own brand, are mainly distributed and marketed by Alhambra and the core activity of Andaluza de Cervezas y Bebidas S.L. is the manufacture of beers which, without its own brand, are distributed and marketed by Alhambra. In 2014, the tax authorities issued two tax assessments to the group: one in relation to FY 2008 and 2009, in the amount of €12,303,526.50 an another ... Read more

The tax authorities excluded some of the entities selected by the taxpayer in a benchmark study, as it considered that they did not meet the necessary comparability requirements, and also included some of the excluded entities, as it considered that they were comparable. These modifications to the benchmark resulted in a variation of the arm’s length range, with the margin earned by the taxpayer falling outside the range. The taxpayer argued that the recalculation of market value should be based on a complete new analysis to replace the one provided by the entity. In relation to the rejection of certain comparables, the taxpayer argued that the information used by the tax authorities and consulted on the internet was not available at the time the transfer pricing documentation was prepared. Judgment of the TEAC The TEAC rejected the claim filed by the taxpayer and upheld the assessment ... Read more

Varian Medical Systems Iberica S.L. is the Spanish subsidiary of the multinational company Varian Medical Systems and carries out two types of activities – distribution and after-sales services. The products sold was purchased from related entities: Varian Medical Systems Inc., Varian Medical Systems UK Ltd., Varian Medical Systems International AG and Varian Medical Systems HAAN GmbH. The remuneration of Varian Medical Systems Iberica S.L. had been determined by application of the net margin method for all transactions and resulted in a operating margin of 2.86% in 2005 and 2.75% in 2006. In 2010 an audit were performed by the tax authorities for FY 2005 and 2006, which resulted in an adjustment. The tax authorities accepted the net margin method, but made various corrections in its application. The adjustments made by the tax authorities resulted in a operating margin of 6.45% in the two years under ... Read more

VOCENTO, S.A. is the parent company of a multinational publishing group. The registered office of VOCENTO, S.A. is in Bizkaia and it is subject to the regulations of this Territory regarding Corporate Income Tax. COMERESA PRENSA, S.L.U. is a wholly-owned subsidiary of VOCENTO and holds most of the shares in regional press publishing companies held by the Group of which VOCENTO, S.A. is the parent company, with the exception of the publishing companies with registered offices in the territories of the Autonomous Community of the Basque Country. In 2015, COMERESA PRENSA, S.L.U. was issued a tax assessment related to pricing of intra-group services. According to the tax authorities Comeresa Prensa had provided certain services to its parent companies -directly and indirectly- for no consideration whatsoever. Judgment of the Audiencia Nacional The decision of the tax authorities was set aside on formal grounds. “It is appropriate ... Read more

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court of appeal upheld the decision of the tax authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: The decision was appealed by SGL Carbon to the Supreme Court. Judgment of ... Read more

Following an audit the tax administration had adjusted the margin obtained by the taxpayer to the median, as it was below the interquartile range of the benchmark analysis. An appeal was filed by the taxpayer with the TEAC. Judgment of the TEAC The TEAC upheld the taxpayer’s appeal and annulled the decision of the tax authorities. Excerpt “… In the present case, the inspectorate has accepted the comparability study of the company without noting any shortcomings in the study. It only notes, perhaps as a justification for the unreliability of the company’s information, that: It should be clear, therefore, that, according to the background information in the file, at no time has group X commissioned or agreed to have its costs and other elements determining the group’s internal data, including its own costs, verified by an independent third party, prior to their provision to the ... Read more

The SEIKO EPSON CORPORATION is a multinational group of Japanese origin active in among others areas, production and sale of computer products. The group is present in Spain, EPSON IBÉRICA, but has its European HQ in the Netherlands, EPSON EUROPE BV. The main shareholder and sole director of EPSON IBÉRICA S.A.U. was initially Mr. Jose Augusto. However, following a capital increase on 24 April 1986, EPSON IBÉRICA SAU became the subsidiary of the EPSON Group in Spain and Mr. Jose Augusto became a member of its Board of Directors. Mr. Jose Augusto held positions in both EPSON IBERICA and the Dutch parent company EPSON EUROPA until he left on 31 August 2007. As part of his emoluments, EPSON IBERICA made contributions to a pension plan since 1999, totalling EUR 2,842,047.55, including an extraordinary contribution of EUR 2,200,000.00, which was agreed by its Board of Directors ... Read more

DIGITEX INFORMATICA S.L. had entered into a substantial service contract with an unrelated party in Latin America, Telefonica, according to which the DIGITEX group would provide certain services for Telefonica. The contract originally entered by DIGITEX INFORMATICA S.L. was later transferred to DIGITEX’s Latin American subsidiaries. But after the transfer, cost and amortizations related to the contract were still paid – and deducted for tax purposes – by DIGITEX in Spain. The tax authorities found that costs (amortizations, interest payments etc.) related to the Telefonica contract – after the contract had been transferred to the subsidiaries – should have been reinvoiced to the subsidiaries, and an assessment was issued to DIGITEX for FY 2010 and 2011 where these deductions had been disallowed. DIGITEX on its side argued that by not re-invoicing the costs to the subsidiaries the income received from the subsidiaries increased. According to ... Read more

BIOMERIEUX ESPAÑA SA is active in the business of clinical and biological analysis, production, distribution, training and technical assistance. Likewise, the provision of computer services and, in particular, the computer management of laboratories. Following an audit the tax authorities found that the controlled prices agreed for the acquisition of instruments and consumables between bioMérieux España and its related entities, bioMérieux SA and bioMérieux Inc, did not provided bioMérieux España with an arm’s length return on is controlled activities. A tax assessment was issued for FY 2008 on the basis af a thorough critical analysis of the benchmark study provided by the BIOMERIEUX, and detailed reasoning and analysis in regards to comparability and market developments. Judgment of the National Court The Audiencia Nacional dismissed the appeal of Biomerieux España SA and decided in favour of the tax authorities. Excerpts “As we already reasoned in our SAN ... Read more

A Swiss company, Ashland Industries Europe GmbH, had not declared a presence in Spain for VAT purposes and did not charge VAT for local sales. However, the Swiss company used the resources of its Spanish subsidiary when performing these local sales of goods in Spain. On that basis, the Spanish tax authorities found that the company had a permanent establishment for in Spain for VAT purposes and issued an assessment. An appeal was filed by Ashland Industries, but the appeal was dismissed by the courts. The Spanish Supreme Court concluded that: “First. To determine whether a permanent establishment can be deemed to exist in the Spanish territory of application of VAT where the only transactions carried out subject to that tax are supplies of goods other than supplies of gas, electricity, heat or refrigeration. Second. If the answer to the previous question is in the ... Read more

At issue in this case was whether or not it is possible to regularize transactions between companies by directly applying art. 9.1 of DTA between Spain and French, without resorting to the transfer pricing methods provided for in local Spanish TP legislation. Application of article 9 and taxing according to local tax legislation is often a question of determining the arm’s length price. But sometimes other rules will apply regardless of the value – for instance anti avoidance legislation where the question is not the price but rather the justification and substance of the transaction. In the present case the arm’s length price of the relevant transaction was not discussed, but rather whether or not transaction of shares had sufficient economic substance to qualify for application of Spanish provisions for tax depreciation of the shares in question. The National Court understood that the share acquisition ... Read more

The tax authorities had issued an assessment according to which royalty payments from Colgate Palmolive España S.A (CP España) to Switzerland were not considered exempt from withholding taxes under the Spanish-Swiss DTA since the company in Switzerland was not the Beneficial Owner of the royalty-income. The assessment was set aside by the National Court in a decision issued in November 2018. The Supreme court were to clarify the conformity with the law of the judgment of the Audiencia Nacional, following in the wake of the order of admission which, in a similar manner to that proposed in appeal no. 5448/2018, ruled in favour of the taxpayer on 3 February last, asks the following questions. a) to clarify the objective and temporal limits of the so-called dynamic interpretation of the DTAs signed by the Kingdom of Spain on the basis of the OECD Model Convention – ... Read more

In the case at hand a related-party transactions had been carried out between a person (shareholder) and a related company. The transaction took place in 2007 and 2008 and was exempt from Spanish transfer pricing documentation requirements. The tax authorities issued an assessment where the transfer pricing had been adjusted and a penalty/fine was added to the claim. The taxpayer was of the opinion that the exemption from penalties extended to cases where the controlled transactions were exempt from transfer pricing documentation requirements. On that basis an appeal was filed. The appeal was dismissed by the lower court Judgment of the Supreme Court The Supreme court upheld the decision of the lower courts and dismissed the taxpayers appeal. According to the court, the exemption from penalties provided for in the rule on related-party transactions requires the taxpayer to be obliged to prepare transfer pricing documentation, and ... Read more

There is an obligation to withhold tax on dividends paid to a holding company resident in an EU Member State, if the beneficial owner is resident abroad. Although the Parent-Subsidiary Directive 90/435 does not contain a beneficial owner clause, the exemption clause contained in Article 14.1.h) of the TRLIRNR is perfectly in line with EU law. It cannot be rejected as an incorrect transposition nor can it be considered to infringe the Community principles of freedom of movement or establishment. All this in accordance with the CJEU Judgment of 26 February 2019. The judgment of the CJEU in Cases C-116/16 and C-117/16 is analysed. In contrast to the judgment cited by the claimant: CJEU Judgment of 7 September 2017 Case C-6/16. SP vs Palmolive SAN_1128_2018 ENG NW”>Click here for English Translation Click here for other translation ... Read more

“X Iberica SA” is a Spanish subsidiary of a multinational group and also a participant in the group’s cash pooling system, both as a borrower and as a provider of funds. When the group is not able to finance itself, the vehicle called THE X TES US comes into play, which raises these funds from outside the group as a group and on the basis of the group’s credit quality. The objective of cash pooling agreements is to manage the cash positions of the participating entities, optimising the group’s financial results by channelling the excess liquidity of the group companies that generate it to the group companies that need financing, resorting to third-party financing when the group itself is not able to finance itself. This achieves greater efficiency in the use of the group’s funds, as well as improving their profitability and reducing the administrative ... Read more

A Spanish subsidiary, ARW Enterprise Computin Solution SA, had deducted intra-group management fees paid according to two service contracts with two french group companies – Distrilogie SA and DCC France Holding SAS. For an expense to be deductible it is required not only that invoice, account, payments have been imputed correctly, but also that the expense have been held for obtaining income and to the direct benefit of the subsidiary. The Spanish tax authorities found, that these requirements had not been sufficiently proved by Computin Solution SA and issued a tax assessment. Click here for other translation ... Read more

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court held in favor of the authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: Article 8 Reglamento MAP: Mutual agreement procedure may be denied, amongst other, in the following cases: ... Read more

Acer Computer Ibérica S.A. (ACI) is part of the multinational ACER group, which manufactures and distributes personal computers and other electronic devices. Acer Europe AG (AEAG), a group entity in Switzerland, centralises the procurement of the subsidiaries established in Europe, the Middle East and Africa, and acts as the regional management centre for that geographical area. ACI is responsible for the wholesale marketing of electronic equipment and material, as well as in the provision of technical service related to these products in Spain and Portugal. ACI is characterized as a limited risk distributor by the group. At issue was deductibility of payments resulting from factoring agreements undertaken ACI with unrelated banks, adopted to manage liquidity risks arising from timing mismatches between its accounts payable and accounts receivable. Based on an interpretation of the limited risk agreement signed between ACI and its principal AEAG, the tax ... Read more

The tax administration had issued an adjustment to the taxable profit of IKEA’s subsidiary in Spain considering that taxable profit in years 2007, 2008, and 2009 had not been determined in accordance with the arm’s length principle. In 2007 taxable profits had been below the interquartile range and in 2008 and 2009 taxable profits had been within the interquartile range but below the median. In all years taxable profits had been adjusted to the median in the benchmark study. Judgment of the Court In regards to the adjustment mechanism – benchmark study, interquartile range, median – the Court provide the following reasoning “However, the OECD Guidelines in point 3.60 provide that “if the relevant terms of the controlled transaction (e.g. price or margin) are within the arm’s length range, no adjustment is necessary”. Conversely, under rule 3.61, if the relevant terms of the controlled transaction ... Read more

The tax authorities had issued an assessment according to which royalty payments from Colgate Palmolive España S.A. (CP España) to Switzerland were not considered exempt from withholding taxes under the Spanish-Swiss DTA since the company in Switzerland was not the Beneficial Owner of the royalty-income. Judgment of the National Court The court held in favour of Colgate and set aside the decision of the tax authorities. SP vs Palmolive SAN_1128_2018 ENG NW”>Click here for English Translation Click here for other translation ... Read more

Tax penalties/fines had been issued following a transfer pricing adjustments in regards of controlled transactions exempt from Spanish TP documentation requirements. An appeal was filed by the taxpayer claiming to be excluded from the Spanish penalty regime. The appeal was dismissed by the lower courts. Judgment of the Supreme Court The Supreme Court upheld the decision of the lower courts and dismissed the appeal of the taxpayer. The Court ruled that the specific transfer pricing penalty regime in Spain is only applicable to the related-party transactions subject to transfer pricing requirements and that controlled transactions exempt from Spanish TP documentation requirements can trigger tax penalties where adjustments have been issued by the tax authorities. In cases, where the taxpayer is exempt from TP documentation requirement, art. 16.10.4 of the TRLIS (the exclusion from penalties) does not apply. The exclusion from penalties provided for in paragraph ... Read more

ZERAIM IBERICA SA, a Spanish subsidiary in the Swiss Syngenta Group (that produces seeds and agrochemicals), had first been issued a tax assessment relating to fiscal years 2006 and 2007 and later another assessment for FY 2008 and 2009 related to the arm’s length price of seeds acquired from Zeraim Gedera (Israel) and thus the profitability of the distribution activities in Spain. The company held that new evidence – an advance pricing agreement (APA) between France and Switzerland – demonstrated that the comparability analysis carried out by the Spanish tax authorities suffered from significant deficiencies and resulted in at totally irrational result, intending to allocate a net operating result or net margin of 32.79% in fiscal year 2008 and 30.81% in 2009 to ZERAIM IBERICA SA when the profitability of distribution companies in the sector had average net margins of 1.59%. The tax authorities on ... Read more

ICL ESPAÑA, S.A., ICL Packaging Coatings, S.A., were members of the Tax Consolidation Group and obtained extraordinary profits in the financial years 2000, 2001 and 2002. (AKZO NOBEL is the successor of ICL ESPAÑA, as well as of the subsidiary ICL PACKAGING.) On 26 June 2002, ICL ESPAÑA, S.A. acquired from ICL Omicron BV (which was the sole shareholder of ICL ESPAÑA, S.A. and of Elotex AG and Claviag AG) 45.40% of the shares in the Swiss company, Elotex AG, and 100% of the shares in the Swiss company of Claviag AG. The acquisition was carried out by means of a sale and purchase transaction, the price of which was 164.90 million euros, of which ICL ESPAÑA, S.A. paid 134.90 million euros with financing granted by ICL Finance, PLC (a company of the multinational ICL group) and the rest, i.e. 30 million euros, with its ... Read more

Microsoft Ibérica S.R.L is responsible for distribution and marketing of Microsoft products in Spain. According to an agreement concluded between Microsoft Ibérica and MIOL (Microsoft’s Irish sales and marketing hub) with effect from 1 July 2003, Microsoft Ibérica would received the largest amount of either a commission based on sales invoiced in Spain or a markup on it’s costs. In support of the remuneration according to the agreement, Microsoft had provided a benchmark study. The Spanish tax authorities found that Microsoft Ibérica had not been properly remunerated due to the fact that goodwill amortisations had been eliminated by in the transfer pricing analysis. By including the goodwill amortisations in the analysis, the result of the local company was below the interquartile rang. The authorities further held that the selected comparables in the benchmark study suffered from comparability defects, in that they had less functions and ... Read more