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13.4.4. APAs and Dispute Resolution Mechanisms

The Regulation of the Corporate Income Tax devotes one entire chapter to the Advance Pricing Agreements. Under these provisions, related individuals and companies may request the Tax Administration to establish the market value of their transactions, including retroactively up to four years. For this purpose, they must submit a proposal where the transactions are explained in detail, with the proposed valuation method and analysis that justifies compliance with the principle of free competition.

Within the 30 days following the receipt of the proposal, the Tax Authorities may request the taxpayer to submit additional information, which must be made within the following 10 days (otherwise the file will be closed).

In some cases (namely, proposal without basis, no risk of double taxation, etc.) the proposal may not be registered.

After examining the proposal, the Tax Administration may:

  • Approve the proposal;
  • Approve, with the taxpayer’s consent, a different proposal; or
  • Reject the proposal (in which case the Tax Administration must state the reason).

The entire process must be finalized within six months. Failure by the Tax Administration to take a decision within this timeframe is deemed to be an implicit rejection.

The administrative decision (whether explicit or implicit) cannot be appealed.

The Regulation also foresees the possibility of starting a bilateral agreement with the Tax Authorities of another country if either the taxpayer so requests (and the Spanish Tax Administration agrees) or the Tax Administration itself deems it opportune (and the taxpayer agrees).

Mutual Agreement Procedure

Most tax treaties concluded by Spain with other OECD countries include a MAP article, allowing the competent authorities to enter into consultation with each other to resolve instances where adjustments imposed by one of the States result in (double) taxation, which is not in line with the treaty. Generally, MAP is followed for transfer pricing cases, anti-abuse provision claims, and multilateral disputes and for multi-year resolution of cases.

Spain has implemented the EU Directive on dispute resolution, which includes rules to ensure effective resolution of disputes between the EU Member States concerning the interpretation and application of bilateral tax treaties and the EU Arbitration Convention, and in particular, disputes leading to double taxation. The EU Tax Dispute Resolution Directive applies to complaints concerning disputes relating to income or capital generated during tax periods beginning on or after 1 January 2018.