By Mario Ortega Calle & Íñigo García Fernández, J&A Garrigues, S.L.P., Spain
The Spanish government has introduced changes to improve and make more accessible its mutual agreement procedure (MAP) for resolving instances of double taxation in the areas of international taxation and transfer pricing through the June 8 approval of Royal Decree 399/2021.
The decree implements three packages of initiatives to enhance the existing MAP framework.
Firstly, it seeks to fully incorporate European Union law into Spanish domestic legislation with respect to tax dispute resolution mechanisms. This change helps to create an effective framework for strengthening legal certainty for international economic operators.
The decree also incorporates certain provisions recommended by the G20/OECD base erosion and profit shifting (BEPS) project final report on Action 14. In this respect, the decree adopts, for example, the definition of a minimum standard, which aims to provide a common base to address these types of issues and set best practices to help jurisdictions to standardize these procedures in their local regulations.
Lastly, the decree aims to resolve certain problems identified by the Spanish competent authority when entering into these types of procedures, thereby further ensuring greater legal certainty for taxpayers relying on these mechanisms to avoid double taxation.
Dispute resolution mechanisms
The main new development in the decree is the introduction of a new Title IV regulating the dispute resolution mechanisms referred to in EU Directive 2017/1852 (which applies to mutual procedure agreements already initiated by the taxpayer under the provisions of tax treaties or the European Arbitration Convention).
The most significant aspect of the new title is the granting of access to an advisory commission to resolve double taxation disputes, as well as the acceptance of applications requesting the commencement of procedures.
Other notable features of new Title IV include specific provisions on the functions of the Spanish Central Economic-Administrative Tribunal (an administrative court) regarding the creation and operation of the advisory commission. It also enables the competent authority to invite its counterparts from other jurisdictions to create an alternative dispute resolution commission for certain situations, lowering the administrative burden for taxpayers or capping the duration of these procedures.
The new rules will generally only apply to applications to commence procedures made on or after July 1, 2019, in connection with income or gains obtained in tax years beginning on or after January 1, 2018. However, the decree would allow the provisions of Title IV for fiscal years before those initiated in 2018 when the tax administrations involved agree on it.
Minimum standard
In accordance with the second set of objectives for this reform, i.e., compliance with the BEPS Action 14 minimum standard, the decree makes access to the procedure easier for the taxpayer. However, more information will be required in the first stage. The Spanish competent authority is now subject to certain reporting obligations vis-à-vis other competent authorities, which will result in more transparency and a decrease in the length of the procedure.
The decree permits accruing late-payment interest during the period the MAP is underway, which would have a beneficial impact for the taxpayer. Additionally, the decree clarifies – only for clarification purposes, since this aspect was already established – that agreements between the competent authorities do not constitute precedents for future cases.
Other improvements
Lastly, the decree introduces certain modifications based on the Spanish competent authority’s experience accrued over the years in mutual agreement procedures. For example, the decree includes provisions relating to the tacit rejection by the taxpayer of the agreement reached, requests to remedy incomplete or incorrect applications when the procedure was not commenced in Spain, and the penalties and sanctions that preclude application of the procedure.
All in all, these new technicalities should be welcomed by taxpayers, since they ease access to the procedure and provide more certainty with respect to resolution of the issue at stake, i.e., eliminating double taxation.
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