9th March 2022
In our newest country update looking at the latest tax developments affecting multinationals and organisations such as recruitment businesses placing contractors abroad, we focus on some of the recent changes introduced by the tax agency in Spain. The approval of general guidelines for its 2022 ‘Annual Tax and Customs Control Plan’ will have far-reaching implications for companies who must carefully look at their corporate tax situations, especially in the complex arena of transfer pricing. Remaining compliant with local tax laws and rules must always be a top business imperative.
Compliance in Spain
As reported by MNE Tax, the cross-border international tax specialist news service, Spain’s tax authority or Agencia Estatal de Administración Tributaria, publishes an annual plan with general provisions concentrating on both on taxation issues affecting corporates but also local resident taxpayers and independent contractors. The document noted that as one of the 141 members of the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), Spain is better able to address and tackle tax avoidance given the greater collaboration among the signatories.
The Spanish government’s tax department was keen to stress that it had far more knowledge thanks to the global exchange of information, as countries around the world seek to prevent companies from exploiting tax rules to avoid paying tax in the jurisdictions in which they operate. Furthermore, it also stated that apart from the OECD’s initiatives, including the Forum on Harmful Tax Practices (FHTP), the EU’s ‘DAC6’ Directive had also proved to be a valuable source of the material. Enhanced co-operation with the UK post-Brexit, has also been key to stamping out tax evasion and money laundering in Gibraltar.
In what other ways is the exchange of information helping the Spanish tax agency improve its processes to ensure that companies are paying the right amount of tax? The Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) have also been beneficial in passing on information about the financial affairs of individuals and businesses. As has the adoption of the EU’s Anti-Tax Avoidance Directive II (ATAD2), approved by Spain in 2021, which targets ‘hybrid mismatches’ that take advantage of differences in tax treatment across individual tax jurisdictions.
Tax compliance risks for global recruiters in Spain
So what exactly is transfer pricing? Simply put, it’s a technique whereby multinationals shift profits from the countries where they have operations to tax havens to avoid or pay very little tax. The Organisation for Economic Cooperation and Development (OECD) has put in place guidelines that work on the ‘arm’s length principle’, ensuring that the global consensus on the valuation of cross-border transactions between companies is maintained. A new version of its ‘Transfer Pricing Guidelines for Multinationals and Tax Administrations’ was published as recently as January 2022.
This will be a key priority area for the Spanish tax agency, which has announced a raft of measures to combat this practice, including audits and advance pricing agreements. An automated pricing risk system will form the bedrock of its strategy – all the information on transactions gathered will be included in the new mechanism. The improved and enhanced analysis will make a significant difference in helping to spot risks and aid Spanish tax authorities to continue making progress in controlling business activity that could be infringing local tax laws.
Compliance and reporting obligations will also be closely scrutinised. Corporate restructures, transfers and any undeclared income relating to the licensing of intangible assets – such as copyrights, patents, trademarks, branding, goodwill and intellectual property – will all come under the spotlight of the new Spanish drive to consolidate public finances. The determination of permanent establishments (PE) to see whether business activity warrants a taxable presence and the correct reporting of non-resident income tax, such as dividends and interest payments, will also be carefully scrutinised.
Clearly, multinational enterprises (MNEs) such as global recruiters placing contractors abroad must be aware of the complex myriad of tax rules in Spain. Failure to adhere to local legislation can lead to lengthy and costly tax assessment procedures that could result in big fines and even prosecution. If you have any concerns about your tax obligations, please talk to one of our 6CATSPRO experts.
