Annual Tax and Customs Control Plan from the transfer pricing perspective
On January 28th 2020 the general guidelines of the Annual Tax and Customs Control Plan were published in the BOE (Official State Gazzete in Spain).
In the same way as previous years, multinational groups, together with large companies and tax groups are in the focus of the Tax Administration. In this sense, the actions that are intended to be carried out, in terms of transfer pricing, are the following:
- Promoting the use of Advance Pricing Agreements to avoid discrepancies with the Tax Authorities regarding the valuation of related transactions and, thus, to avoid inspections and even dispute resolution procedures (such as Mutual Agreement Procedures) with Tax Administrations of other countries.
An Advance Pricing Agreement is an agreement between one (unilateral) or several (multilateral) tax administrations and a taxpayer in which a set of criteria are determined, before carrying out the controlled transactions, to agree the transfer pricing applicable to these transactions.
The period of validity of an Advance Pricing Agreement is four tax periods at the most, from the date of the agreement approval. Similarly, the agreement may also be retroactive, up to four tax periods.
2. Performing risks analysis tasks through information sources of the Tax Authorities and new technology focus on this area.
In this sense, in 2020 a new automatic system of risks analysis in transfer pricing will be used to collect all the information available from the Tax Administrations, that is, information received through the automatic exchange of information with other countries, Country-by-Country Reporting, Advance Pricing Agreements and Mutual Agreement Procedures, among other sources of information. All this information will enable the Tax Authorities to perform a risk analysis through the development of indicators, rates and models, as well as the identification of behavioural patterns that implies high tax risks.
The Country-by-Country Reporting provides consolidated data of the group of companies to which a Spanish taxpayer belongs to and enables the Authorities to detect, easily, tax risk.
This document contains, on the one hand, information on certain areas (income, profits, corporation tax, stated capital, undistributed profits, number of employees and intangible assets) of each tax jurisdiction, that is, all companies within the same jurisdiction.
On the other hand, it identifies the companies of each tax jurisdiction and indicates their economic activity.
3. Simultaneous controls and coordinated tax inspections between the different international tax administrations, in order to have greater control over multinational groups.
Regarding the mechanisms of disputes resolution for multinational groups, the OECD Guidelines mention the Mutual Agreement Procedure, which is considered one of the main ways to resolve disputes related to double taxation, and a new procedure derived from Directive (EU) 2017/1852 of the Council, of October 10th 2017, which will resolve disputes between Member states of the European Union.
Main objectives of Tax Authorities
The areas, within the transfer pricing field, that will be of interest for Tax Administration in 2020 are: business restructurings, the valuation of intragroup assets transfers (mainly, intangibles), deductions (fees for the intangible transfers, provision of services and recurring losses), lack of declaration of incomes derived from provision of services, transfer of not charged assets or wrong application of patent box regime. Regarding the recurring losses, it seems to be the centre of the Tax Authorities attention during year 2020.
In addition, activities related to manufacturing and distribution will be checked, as well as the selection and application of the transfer pricing method used in related transactions.
As in previous years, the correct attribution of results to permanent establishments will be controlled.
Furthermore, the relationship of shareholders or administrators (or other natural persons related to them) with companies controlled by them will also be of interest for Tax Authorities. The purpose is to verify that companies do not register incomes that should be taxed through the Personal Income Tax.
In general, the guidelines of the Annual Tax and Customs Control Plan are in line with the guidelines published in previous years, with exceptions such as the great interest in the recurring losses generated by taxpayers or the implementation of certain technological tools that allow performing detailed risk analysis.