The Spanish Supreme Court issued its final judgment regarding challenges the constitutionality of specific provisions of the transfer pricing regulations on 14 July, 2014.

The Supreme Court focused the following areas;

Secondary adjustment: The Supreme Court considers the secondary adjustment mechanism regulated in Article 16.8 of the Corporate Income Tax Law (CITL) as a specific qualification clause that could operate as a presumption iuris tantum in those cases in which there has been a real transfer of profit but in a manner different to that recognized in the books.

Requirements of Transfer Pricing Documentation:

The concluded that the documentation requirements established in the CIT Regulations did not breach the legality standard.

Specific procedure for assessing the arm’s length remuneration

The Supreme Court eliminated the following paragraph within Article 21.2 of the CIT Regulations:

“If, in the case of disagreement between the different associated parties or companies, the two review procedures occur at the same time, the appeal or claim first filed will be processed and the second or final appeal or claim would be declared inadmissible.”

Transfer pricing penalty regime

The Supreme Court again followed the conclusions reached by the Constitutional Court, which declared the transfer pricing penalty regime as constitutional.

Once the Spanish transfer pricing penalty regime was sanctioned by the Constitutional Court, the Supreme Court’s decision emphasized the importance, for all Spanish taxpayers, of having correct transfer pricing documentation in place. Failure to comply with transfer pricing documentation requirements may result in severe penalties.