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
Judgement 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 is therefore not applicable to those taxpayers who are exempt from the documentation requirement.
In order to use the exemption from penalties, the following requirements must be met:
- The transfer pricing documentation requirements have been complied with;
- The declared value coincides with the value derived from such documentation;
- That, notwithstanding the above, the Tax Administration has made a transfer pricing adjustment.
If the taxpayer is exempt from the formal transfer pricing documentation obligations, the tax authorities may adjust the transfer price of the related-party transactions and apply the general penalty regime provided for in the General Tax Law.
Spain Penalty TP doc STS_951_2020