Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Spain

Spain has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review), except for collecting and exchanging information on new assets of existing taxpayers benefitting from the grandfathered IP regime (ToR I.4.1.3). For the year in review, Spain is recommended to identify and exchange relevant information on new assets of existing taxpayers benefitting from the grandfathered IP regime.

Spain can legally issue three types of rulings within the scope of the transparency framework.

In practice, Spain has issued 146 past rulings; for the period 1 April 2016 - 31 December 2016, Spain issued 28 future rulings; and for the year in review, Spain issued 46 future rulings within the scope of the transparency framework.

Peer input was received from four jurisdictions in respect of the exchanges of information on rulings received from Spain. It was positive, noting that information was complete, in the correct format and received in a timely manner.

Introduction

1233.  This peer review covers Spain’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1234.  Spain can legally issue the three following types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; and (iii) permanent establishment rulings. Depending on the type of ruling, such decisions are made and coordinated either by two national offices: the General Directorate for Taxation (Ministry of Finance) and the International Taxation Office (Spanish Tax Agency) or by one of four subnational offices in Basque Country and Navarra. Rulings excluding APAs are published in anonymised form.2

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1235.  For Spain, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

1236.  In the prior year peer review report, it was determined that Spain’s undertakings to identify past rulings met the ToR, except that Spain was recommended to use the “best efforts approach” to identify the potential exchange jurisdictions for past rulings, which were preferential regimes or permanent establishment rulings (ToR I.4.2.2). Spain has used the “best efforts approach” by verifying the information already available within the tax administration, which is obtained through the General Directorate of Taxation database. Where necessary, publicly available information was used. Spain confirms that in all cases, all potential exchange jurisdictions were able to be identified. It is therefore determined that Spain’s undertakings to identify the potential exchange jurisdictions with respect to past rulings meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1237.  For Spain, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

1238.  In the prior year peer review report, the process of issuing and identifying future ruling was described. This process met the ToR, except that Spain did not yet collect information on all potential exchange jurisdictions for future rulings which are preferential regimes or permanent establishment rulings (ToR I.4.2.1). Therefore, it was recommended that Spain continues with its proposal to amend its rulings practice for all future rulings to require taxpayers to provide information on all potential exchange jurisdictions as part of the ruling process.

1239.  As of 29 December 2017, Spain modified the Royal Decree 1065/2007 of 27 July, to expand the information that the taxpayer must provide when asking for a ruling, including all the information required to identify potential exchange jurisdictions. For the period until 29 December 2017, Spain used the “best efforts approach” by using internal information to identify the potential exchange jurisdictions. Spain was able to obtain information on potential exchange jurisdictions and therefore it is determined that Spain’s undertakings to identify the potential exchange jurisdictions with respect to future rulings before the amended Decree took effect meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

1240.  In the prior year peer review report, it was determined that Spain’s review and supervision mechanism was sufficient to meet the minimum standard. Spain’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

1241.  Spain has met all the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1242.  Spain has the necessary domestic legal basis to exchange information spontaneously. Spain notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

1243.  Spain is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 12 jurisdictions and (iv) tax information exchange agreements with 92 jurisdictions.3

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1244.  In the prior year peer review report, Spain’s process for the completion and exchange of templates was sufficient to meet the minimum standard, except that Spain transmitted information on future rulings to the Competent Authority at six monthly intervals each year, to align with the EU Directive deadlines, which are longer than necessary. Therefore, Spain was recommended to reduce the timelines for providing the information on future rulings to the Competent Authority.

1245.  In the year of review, Spain has set up a system to accelerate the time of sending the information to the Competent Authority. This system is based on an electronic template which is populated when an APA is signed and this makes the information available within two months to the Competent Authority for the exchange. For other types of rulings, the system is based on a template to be completed when the ruling is published (one month after it is signed) and the information is made available to the Competent Authority for the exchange of information within two months. After the template has been made available to the Competent Authority, the exchange with the relevant jurisdictions has to take place within three months.

1246.  This process was implemented on 4 December 2017, which is relatively late in the year of review. However, the recommendation in the prior year peer review report acknowledged that the approach taken by Spain in 2016 reflected its understanding at the time that such timelines would be consistent with the ToR for the transparency framework, and this interpretation issue was resolved by the FHTP in October 2017, when most of the year in review had already passed. Spain has taken its best efforts to implement this new process as soon as possible after the issuance of the recommendation and therefore the prior year recommendation has been removed. The timeliness of the new process will be reviewed in the subsequent peer review.

1247.  For completing the summary section of the template, tax officers are instructed to include a brief description of the subject and outcome of the issue contained in the rulings. In addition, with respect to APAs, the summary section includes a description of the relevant business activity or transactions or series of transactions and a summary of the functional analysis performed, and where appropriate, the functional profile of the entity. The summary section is completed in English and Spanish.

1248.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	0	0	N/A
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	124	0	N/A
Total	124	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

Conclusion on section B

1249.  Spain has the necessary legal framework and administrative processes in place for exchanging information on rulings. Spain has met all of the ToR for the exchange of information process.

C. Statistics (ToR IV)

1250.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	Included in de minimis	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	89	Argentina, Australia, Brazil, Canada, Czech Republic, Germany, France, Hungary, Ireland, Italy, Luxembourg, Mexico, Netherlands, Norway, Portugal, Romania, South Africa, United Kingdom, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	25	Andorra, Austria, Finland, Germany, Latvia, Luxembourg, Netherlands, Norway, Portugal, Romania, United Kingdom
Related party conduit rulings	N/A	N/A
De minimis rule	2	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	8	Argentina, Brazil, Italy, Mexico, Portugal
Total	124

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1251.  Spain offers three intellectual property regimes (“IP regime”) that are subject to transparency requirements under the Action 5 Report (OECD, 2015).4 It states that the identification of the benefitting taxpayers will occur as follows:

• New entrants benefitting from the grandfathered IP regime: specific provisions were included in the corporate income tax returns as of 2016 to identify new taxpayers, which apply starting with the 2015 tax period. Specific provisions for the subnational regimes were also included in their 2016 corporate income tax returns. The first tax returns were filed by 25 July 2016 for taxpayers on a calendar year. Spain completed eight exchanges of information on new entrants for the year 2015 in May 2017. Information from taxpayers which use a non-calendar year for tax purposes and file their return later will be exchanged in the next year. Spain plans to send information on new entrants on an annual basis. A new tax form was adopted in August 2017 in order to include, among other items, information about new entrants benefitting from the grandfathered IP regime. This tax return will be submitted by taxpayers using the calendar year by the end of November. Therefore, as soon as information on new entrants for tax year 2016 is reviewed by the Tax Agency, it will be sent on an annual basis. However, new IP assets cannot be identified in the absence of the relevant data in the tax returns. This information could be collected in the case of a formal investigation. It is noted that it would not be practicable for Spain to open a formal investigation solely to obtain this information. Spain is considering how best to collect this information. Therefore, Spain is recommended to identify and exchange relevant information on new assets of existing taxpayers benefitting from the grandfathered IP regime.

• Third category of IP assets: not applicable to these IP regimes, which in 2017 were in the process of being amended. See below for recent updates.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable to these IP regimes, which in 2017 were in the process of being amended. See below for recent updates.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Spain has not exchanged information on new assets of existing taxpayers benefitting from the grandfathered regime as this information was not available during the year in review.	Spain is recommended to identify and exchange relevant information on new assets of existing taxpayers benefitting from the grandfathered IP regime.

Jurisdiction’s response and recent developments

1252.  With effect from 1 January 2018, Spain has amended its IP regimes. The federal IP regime is now concluded as “not harmful”.5 The third category of IP assets and the treatment of the nexus ratio as a rebuttable presumption are not included in the amended regimes and therefore no transparency requirements are relevant. In addition to this, Spain notes that these two options were also not included in the previous regimes.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) Partial exemption for income from certain intangible assets and 2) Shipping regime.

← 2.  For rulings issued by the General Directorate of Taxation, available at http://petete.minhafp.gob.es/consultas/ (accessed 20 November 2018).

← 3.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Spain also has Double Tax Agreements with: Spain has Double Tax Agreements with Albania, Algeria, Andorra, Argentina, Armenia, Australia, Austria, Barbados, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China (People’s Republic of), Colombia, Costa Rica, Croatia, Cuba, Cyprus, Czech Republic, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong (China), Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Panama, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Senegal, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Sweden, Switzerland, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela and Viet Nam.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 4.  These regimes are the partial exemptions for income from certain intangible assets for: 1) Federal regime, 2) Basque country and 3) Navarra.

← 5.  Spain’s partial exemption for income from certain intangible assets was inconsistent with the nexus approach for IP assets acquired from related parties for the period from 1 January 2017 to 31 December 2017 and for new taxpayers entering the regime in the period from 1 July 2016 to 31 December 2017.