The Spanish Government has published the project of the new Corporate Income Tax Regulation, which includes the new country-by-country information report obligations

Written on 27 Mar 2015

The Corporate Income Tax Regulation project, recently published, includes the obligation to detail the tax and financial information of multinational group subsidiaries on country-by-country basis. This initiative is aligned with the recommendations included in OECD BEPS reports with the aim of increasing the transparency of transfer pricing policies in multinational groups.

The Corporate Income Tax Regulation (the “CITR”) project has been published. Amongst others, it includes a country-by-country report disclosure obligation.

This obligation will affect any group parent entities that are tax resident in Spain and have had consolidated group revenues of at least 750 million in the 12 months prior to the FY beginning.

The information should be filed within the 12-month period following the FY end, using a specific tax form, including a breakdown for each country in which the group operates. In case the group has multiple subsidiaries in one country the information should be aggregated for each jurisdiction. In the latter case, and although the CITR does not make any specific provision, we understand that, at least for financial information, a consolidated version should be prepared in order to avoid any confusion arising for intra-group transactions or investments.

The information to be filed includes economic and business information (average workforce, activities carried out by the entities and other relevant information), financial information (gross revenues split between those from related entities and those from third parties, share capital, net equity, fixed assets and real estate investments) and tax information (earnings before taxes, Corporate Tax triggered and effectively paid).

The initiative is aligned with the recommendations included in the OECD BEPS reports issued in September 2014. Specifically with Action 13, relating to transfer pricing documentation and country-by-country report, which considers country-by-country information as an instrument for a high-level risk assessment but in any case it should not be used as a substitute for a detailed transfer pricing analysis. 

According to the grounds of the Regulation included in the CITR this measure should be understood as “an instrument indicating the transfer pricing policy of a group”. In the same line as the already abovementioned BEPS report on Action 13.

Therefore, country-by-country information should not be understood as a declaration or as a proof of the transfer pricing policy, but merely as an indicative element that should be considered, jointly with all the remaining transfer pricing documentation, to evaluate said policy.

In this regard, it should be noted that the information will be filed before the tax administration using a specific tax form, so any potential inclusion of this information in the annual accounts has been ruled out (as insinuated in the past), so the information will not be of public access. 

It seems that the possibility of claiming this information to Spanish subsidiaries of international groups has also been ruled out, as the obligation has been limited to Spanish parent entities. However, this does not prevent tax authorities from obtaining this information through the usual audit mechanisms or through the information exchange with other tax administrations, once this mechanism is broadly implemented.

Notwithstanding the above a provision has been included that shall allow claiming, from 2018 onwards, this information to Spanish subsidiaries of international groups in those cases where the parent entity is resident in a black-listed tax haven or in any jurisdiction were no equivalent obligation exists (i.e. when the Spanish tax administration cannot access the relevant information by any means).