In the Official State Gazette, last February 27, the Tax Agency published the General Guidelines of the PACTA (Plan Anual de Control Tributario y Aduanero – Annual Tax and Customs Control Plan) of 2023 where the “360° strategy” is configured by which the information on related party transactions is interrelated to verify the compliance with the Arm’s Length Principle.
1. Objective of PACTA
This Plan organizes the Tax Administration’s lines of action for the period 2020-2023. Likewise, it classifies the general guidelines for action into the following: Information and assistance, prevention of non-compliance, promotion of voluntary compliance, prevention of tax and customs fraud, and collaboration, among other Tax Administrations.
Concerning Transfer Pricing and its interrelation with international taxation, the Plan’s line of action is the exchange of information to which the Tax Agency has access to assess the Arm’s Length Principle in related-party transactions.
This action, the “360° strategy”, aims to oblige the Administration and the taxpayer to be consistent with the analyzed information and its impact on the audited Transfer Pricing policy, as well as to avoid controversies that may arise.
2. 360° Strategy
The 360° Strategy, along with other instruments, such as joint inspections at a community level or the reinforcement of the automatic exchange of information between Tax Administrations, especially with the Country-by-Country Report, which, according to Spanish regulations, must be accessible to the public by multinational groups as of 2024.
On the other hand, the following types of related-party transactions will be considered for auditing: Corporate restructurings, valuation of intra-group transmissions or assignments of different assets, and financial related-party transactions, among others.
3. Transfer Pricing Instruments
The Tax Agency also seeks to guarantee legal certainty for taxpayers in the application of taxes. We are going to mention below some of these instruments related to Transfer Pricing.
- Previous Valuation Agreements: According to the definition presented in the Plan, it is “an instrument to ensure international legal tax relationships, thus guaranteeing taxation under the Arm’s Length Principle.”
- Tax risk assessment programs: These are organized in different levels, such as ICAP, ETAC, or transparency reports, at international, European, and national levels, accordingly,
- Friendly procedures between Tax Administrations of other countries: The Spanish Tax Administration was recognized by the OECD for resolving its disputes shortly compared to countries such as Germany or the United Kingdom.
Source: Legal Today 09/03/23