Transfer Pricing

What Is Transfer Pricing?

Transfer pricing describes the process of setting prices for transactions between associated enterprises — companies that are part of the same corporate group or otherwise under common control. These transactions include:

• Sale of goods between a Spanish subsidiary and its foreign parent
• Provision of management services from a group headquarters to Spanish operations
• Licensing of intellectual property (brands, patents, software) to the Spanish entity
• Intragroup financing (loans and guarantees)
• Cost-sharing arrangements

Because these transactions occur between related parties rather than independent market participants, there is a risk that prices could be set to shift profit artificially to lower-tax jurisdictions. Transfer pricing rules exist to counteract this by requiring that intragroup prices reflect what independent parties would have agreed — the arm’s-length principle.

Spain’s Transfer Pricing Framework

Spain’s transfer pricing rules are contained in Article 18 of the Corporate Tax Act (Ley 27/2014) and closely follow the OECD Transfer Pricing Guidelines. The AEAT is an active and sophisticated enforcer: transfer pricing is among the top audit priorities for groups with cross-border intragroup transactions.

Arm’s-Length Methods

Spain accepts five OECD-approved methods for establishing arm’s-length prices:

1. Comparable Uncontrolled Price (CUP) — compare the intragroup price to prices in comparable third-party transactions.
2. Resale Price Method — subtract an appropriate gross margin from the resale price to a third party.
3. Cost-Plus Method — add an appropriate markup to the supplier’s costs.
4. Transactional Net Margin Method (TNMM) — compare the net margin on the transaction to that earned in comparable independent transactions.
5. Profit Split Method — allocate combined profits between related parties based on their relative contributions.

The most appropriate method depends on the nature of the transaction and the availability of comparable data.

Documentation Requirements

Spanish law distinguishes between two levels of documentation:

• Local File (Documentación local): Specific to the Spanish entity, covering all material related-party transactions, the methods used, comparability analysis, and the determination of arm’s-length prices.
• Master File (Documentación maestra): Group-level overview of the multinational group’s business, transfer pricing policies, and global allocation of income and taxes. Required if the group’s net revenue exceeds EUR 45 million.
• Country-by-Country Report (CbCR): Required for groups with consolidated revenue above EUR 750 million; filed by the ultimate parent.

Documentation must be prepared before filing the Corporate Tax return — it does not need to be submitted proactively but must be provided to the AEAT within 10 days of a request.

Penalties

If the AEAT makes a transfer pricing adjustment and:

• The taxpayer has adequate documentation: a penalty of 15% of the adjustment amount applies.
• The taxpayer lacks documentation: a penalty of 15% applies to the adjustment, but is doubled for the portion without documentation.

These penalties are in addition to the primary tax and interest on the adjustment.

Common High-Risk Areas in Spain

• Management fee arrangements with foreign parents, especially where the benefit to the Spanish entity is difficult to demonstrate
• Royalty and licence payments for IP, particularly where the IP was developed in Spain and transferred abroad
• Financial transactions — the AEAT has adopted specific guidance on intragroup loans following the 2020 OECD guidance
• Business restructurings where functions, assets, or risks are transferred out of Spain

How BMC Can Help

We prepare transfer pricing studies and documentation that meet AEAT requirements, benchmark intragroup transactions against market comparables using the leading databases (BvD Orbis, Royalty Range), and advise on structuring intragroup arrangements to minimise both tax and audit risk.