Country-by-Country Reporting in the EU: Spain Adopts Regulations and the European Parliament Votes for Public Disclosure
On 11 July 2015 a new Corporate Income Tax Regulation (CITR) was approved in Spain, introducing, amongst other things, amendments to the Spanish transfer pricing reporting requirements. The new requirements largely reflect the recommendations made by the OECD with respect to Action 13 of the OECD Base Erosion and Profit Shifting (BEPS) project by introducing country by country (“CBC”) reporting and expanding reporting obligations regarding the master file and the local file.
The approval of the CITR in Spain comes only days after Members of the European Parliament voted on a legislative proposal for CBC reporting to be adopted as a standard for all listed or unlisted multinational companies operating in the EU. The amendments, if adopted by the European Council, would result in a requirement for public disclosure of CBC reporting information and details of tax rulings by large and public interest companies in their financial statements.
Spain’s new transfer pricing reporting requirements
Set out below is a high level summary of new Spanish Transfer Pricing Reporting requirements, which take effect from 1 January 2016.
Country by country report
Multinational groups with a net turnover of the 12 months preceding the first day of the tax year of €750 million or more with a parent company (head of a group as defined under Spanish transfer pricing rules) resident for tax purposes in Spain will be obliged to prepare and lodge the relevant annual CBC report, as will Spanish subsidiaries of such Groups (where the parent company is not resident for tax purposes in Spain) and Permanent Establishments (PE) if:
All Spanish subsidiaries or PE subject to reporting obligations under the above rules must communicate to the Spanish Tax Authorities the group entity that will be preparing the CBC report before the end of the fiscal year.
The required content of the annual CBC report is consistent with the OECD recommendations in that it requires aggregated tax jurisdiction-wide information relating to:
The information to be provided in the CBC report should be denominated in euros, and the report should be filed within the 12 month period after the closing of the fiscal year to which the information is referred to.
Transfer pricing documentation
The two-tier approach to transfer pricing documentation has been part of the Spanish transfer pricing documentation requirements for several years already. The new requirements adopt a similar approach to the previous requirements but expand on the information that is required to be included in both the master file and local file and introduce a simplified approach for entities belonging to groups with a consolidated net turnover lower than €45 million in the preceding year.
The information required to be included in the master file is expanded under the new requirements, with the most important differences being as follows:
Entities belonging to groups with a consolidated net turnover lower than €45 million in the preceding year are exempt from the preparation of the master file.
The content of the local file remains relatively similar to the previous requirements, the main developments being the following:
The penalty regime applicable for not providing the documents requested under the master and local file is the following:
The European Parliament’s Proposal on Public Disclosure of Country by Country Reporting and Tax Rulings
On the 8 July 2015 the Members of the European Parliament (MEP) voted to adopt changes to the Commission’s legislative proposal in the form of an amending directive that calls for the existing CBC reporting requirements under Directive 2013/34/EU (which previously only applied to large extractive and logging companies 1) to be applicable to all large and public interest companies.
If approved by the European Council, the amending directive would require that the information publically disclosed in the financial statements of large and public interest companies to be expanded so as to include the names of all subsidiaries and their activities and geographical location, detail their financial performance (turnover, sales and purchases, profit or loss etc.), asset values and their annual maintenance costs, tax information and number of employees for each country (members, states and third countries) in which they operate. The amending directive also calls for public disclosure of basic information concerning tax rulings in financial statements.
While it is unclear whether or not the amending directive will be adopted by the European Council, and which member states will support the proposal and which will voice objections, the message from the European Parliament on CBC reporting and tax transparency is clear. On the same day as the amended directive was adopted, the European Parliament adopted a resolution on tax avoidance and tax evasion and developing countries, calling on the OECD to “recommend that its proposed CBC reporting template should be made public by all multinational corporations” 2.
The European Parliament’s proposal comes in the midst of the Commission’s on-going work on corporate tax transparency. In order to obtain the various views on interested parties, the Commission has launched a “public consultation on further corporate tax transparency” and is calling for contributions through an online survey. Interested parties are encouraged to make submissions, and have until 9 September 2015 to do so.
DLA Piper will continue to monitor transfer pricing and other BEPS related developments in the EU, Spain and elsewhere, and will provide updates as information becomes available.
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1 Note that article 89 of EU Directive 2013/36/EU also requires qualifying financial institutions to provide CBCR of taxes paid and other financial data
2 European Parliament resolution of 8 July 2015 on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries (2015/2058(INI))
