By Pilar Barriguete & Edland Graci, Duff & Phelps, Spain
The Spanish tax authorities have announced Tax Control Plan for 2020, outlining the government’s priorities for tax enforcement.
As in previous years, transfer pricing remains a key area of focus. The government will also direct tax enforcement efforts on the effective application of the anti-avoidance measures, permanent establishments, and tax-haven regulations, the government said in its plan, released January 28.
Special attention will be given to the fulfillment of the documentation and information obligations regarding transfer pricing, including the analysis of the assessment of functions, assets, and risks contained in the documentation.
In 2020, the Spanish tax authorities will give particular scrutiny to the following seven key areas: corporate restructuring, valuation of intragroup transfer of assets, especially intangibles; deductions that could erode significantly the tax base, such as payment of royalties or intragroup services; activities carried out by entities covered by functional structures characterized as low risk where entities have significant economic presence (e.g., those in manufacturing and distribution activities); taxation of new highly-digitized business models; financial transactions, and attribution of profits to permanent establishments.
Transfer pricing risk analysis
The Spanish tax authorities will implement a new automated system of risk analysis in transfer pricing in 2020.
This system is based on information available on intercompany transactions that the authorities obtained through the OECD/G20 base erosion profit shifting (BEPS) project as well as disclosure requirements mandated by the European Union.
The main sources used by the authorities are the automatic exchanges of information, other unilateral agreements, as well as the information derived from the country-by-country reporting. This information, together with the data obtained by the best practices of multinationals and the sectors in which they operate, simultaneous audits, prior advanced price agreements, mutual agreement procedures, and the increasing specialization of the administration in international tax matters, will allow the authorities to conduct a better risk analysis through the development of indicators, indexes and models, and the identification of high fiscal risk behavior patterns.
Moreover, the information on potentially aggressive cross-border tax planning mechanisms referred to in Directive (EU) 2018/822 of May 25, 2018, also known as DAC 6, will also help these public actions, since it will undoubtedly have a special impact on the information available regarding data from large multinational groups.
Due to the implementation of DAC 6, as of 2020, any intermediary (accountants, advisers, lawyers, banks, etc.), who sell reportable cross-border tax arrangements to their clients, should report information on the arrangement to the tax authorities of their home Member State. This new source of information will contribute to greater transparency, facilitating both prevention and correction of evasive or elusive behaviors.
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