In related-party transactions, the correct valuation of transactions is essential to ensure compliance with the Arm’s Length Principle. Recently, the TEAC (Tribunal Económico-Administrativo Central – Central Economic-Administrative Court) of Spain ruled on the CP (Cost Plus) method application in situations of double membership.
What Is Double Membership in Related-Party Transactions?
Double membership occurs when an individual or entity is simultaneously related to two or more entities performing transactions with each other. This scenario can complicate the valuation of transactions, as the relationships between the parties may influence the agreed terms.
Cost-Plus Method: An Effective Tool
The Cost-Plus method consists of adding an appropriate markup to the cost of producing or acquiring goods or services in a related transaction. This method is beneficial when there are no comparable prices in the free market.
TEAC Pronouncement on Double Membership
In Resolution RG 7833/2023, dated February 25, 2025, the TEAC analyzed a case involving a triangular relationship between a majority shareholder and director (Mr. Xy), his partnership (W), and another related entity (R). The Inspectorate adjusted Mr. Xy’s remuneration, considering it was not under market conditions, applying the Cost-Plus method to appraise the services rendered. The TEAC ratified that this method is appropriate in double membership situations if there are specific terms on income derived from related and third parties.
Conclusion
Applying the Cost-Plus method in cases of double membership allows a more accurate valuation of related party transactions, ensuring compliance with the Arm’s Length Principle and correct taxation.
Ensure the Correct Valuation of Your Related-Party Transactions!
For further information and customized advice on Transfer Pricing and related-party transactions, please do not hesitate to contact TPC Group.
Source: Fiscal Impuestos